RMDs with direct named bens and trusts
If the client names the primary beneficiary of: 25% to brother and 75% to the trust (3 kids) whos life exp. is used for RMDs? We will assume the trust qualifies as a designated benficiary. Since the trust does not meet the separate accounts rule, would the brother use his own and the trust benes use the oldest?
Thanks
🙂
Permalink Submitted by mk foss on Wed, 2011-08-17 17:12
If the IRA is split into an inherited IRA for the brother and an inherited IRA for the trust – then the brother uses his life expectancy and the trust uses the life expectancy of the oldest trust beneficiary. The separation must occur before December 31 of the year after the death but it’s best to do it as soon as possible.
Permalink Submitted by Alan Spross on Wed, 2011-08-17 21:16
This raises the question of what happens if neither the trust nor the brother separate into separate beneficiary IRAs before that deadline.
If trust is qualified, the RMD for the trust is based on the older of the oldest trust beneficiary or the brother. So is the RMD for the brother.
If the trust turned out not to be qualified, the RMD for both the trust AND the brother are:
a) If owner died prior to RBD, the 5 year rule applies for both brother’s and trust’s interest
b) If owner died on or after the RBD, the remaining life expectancy of the owner applies to each interest
You can see that both the trust beneficiaries and the brother can be negatively affected by the failure to establish separate accounts even though separate account rules do not apply within the trust.