Non spouse inherited IRA
Hello,
My client passed away at age 75, and he has not taken his RMD in 2011.
The trust is a primary beneficiary and the beneficiary of the trust is an institution which is no longer exist.
The court appointed successor beneficiary (trustee) handling my client’s estates (family trust account, his IRA account, etc..)
In this case the successor trustee is not a family member. My client has 3 children (the oldest is age 55+)
1) I would like to know, since the RMD has not met, the successor trustee for the trust must take his 2011 distribution by December of 2011, is that correct?
2) Proper change of his IRA account, should the account be titled IRA FBO (Name of Deceased) B/O Family Trust (IRA Beneficiary) or B/O Successor trustee (appointed by the court)?
3)Options for taking distribution from his IRA account, should the distribution base on the oldest of the his children’s life expectancy following the year of his death or taking lump sum?
4) Can my client children each set up their own non spouse inherited IRA?
Any advice would be appreciated.
HH
Permalink Submitted by Alan Spross on Sat, 2011-10-15 16:48
1) I would like to know, since the RMD has not met, the successor trustee for the trust must take his 2011 distribution by December of 2011, is that correct?
Yes, an effort should be made to distribute the decedent’s 2011 RMD to the trust, but if this does not get done until next year, there is still a chance that the IRS would waive the penalty if there is “reasonable cause”. See p 6 of the 5329 Inst.
2) Proper change of his IRA account, should the account be titled IRA FBO (Name of Deceased) B/O Family Trust (IRA Beneficiary) or B/O Successor trustee (appointed by the court)?
The IRA custodian may have a preferred format. The IRS only requires that both the name of the decedent and the beneficiary (trust) are included in the inherited IRA registration.
3)Options for taking distribution from his IRA account, should the distribution base on the oldest of the his children’s life expectancy following the year of his death or taking lump sum?
If the trust is “qualified” for look through treatment, the age of the oldest individual beneficiary of the trust will determine the RMDs for all. However, the defunct institution must be eliminated as a trust beneficiary by 9/30 of the year following owner’s death for the trust to meet qualified status requirements. I would consult with an estate attorney to determine what steps need to be taken to accomplish this. If this is not done, the RMDs must be based on the remaining non recalculated life expectancy of the decedent.
4) Can my client children each set up their own non spouse inherited IRA?
If the provisions of the trust do not prevent it. There may have been a specific purpose for the trust and leaving the IRA to it, but if it just a typical RLT, the provisions may allow the IRAs to be assigned to each trust beneficiary. This applies regardless of what the RMD divisors turn out to be.
Permalink Submitted by Sandra Hoa Truong on Mon, 2011-10-24 15:13
I am referring back to my question #1
Can RMD of 2011 distribute from the beneficiary IRA?
Also the term inherited IRA and Beneficiary IRA, are they the same?
In my case the trust is the beneficiary of decedent.
Your help is appreciated.
HH
Permalink Submitted by Alan Spross on Mon, 2011-10-24 19:06
Yes, those terms are synonymous (inherited IRA, BDA, beneficiary IRA). A trust or estate beneficiary is referred to as a “non individual” beneficiary. If the trust is qualified, the oldest beneficiary of the trust is treated as an individual for RMD purposes.
The 2011 RMD can be distributed either to the trust, or to the beneficiary IRA(s) if the IRA is assigned to the beneficaiaries before the RMD is distributed. If the RMD is not distributed before year end, a 5329 will be required to request a penalty waiver on the return of the trust, or if the IRA is assigned to the beneficairies, on their individual returns.