IRA BDA- multiple bene’s. Use the youngest for RMD?
We have a client couple with a legal Trust and the husband passed away earlier this year. His IRA named the Trust as the sole beneficiary and we have established an IRA-BDA account in the name of this Trust. The wife and the husband’s brother are the Trustee’s. This couple had no children but have a large extended family that is included in the legal Trust as beneficiaries.
We expect that next year two new Trusts will be established. One as a QTIP Trust to hold the marital share and a Family Trust to hold the non-marital share.
We have the RMD situation for 2011 figured out, and will be withdrawing RMD based on the wife’s Single Life Expectancy prior to 12/31/11 as the attorney has instructed us. However, for 2012 we are wondering if there are other options we can consider. Specifically, we have heard that it may be possible to select a younger beneficiary and to use their date of birth when determining RMD instead of using the wife’s date of birth. The least amount of funds that need to be withdrawn, the better.
The wife is currently age 68. There is approximately $1M in the IRA-BDA account.
For example sake, if the youngest beneficiary in the Trust is a nephew, age 27, can we use his age to determine RMD? Would the wife be relinquishing any of her rights or the funds to him? What implications should we be aware of in advance?
Permalink Submitted by Alan Spross on Sat, 2011-11-05 00:11
Unfortuneately, there are quite a few impressions here that are incorrect.
First, since the IRA owner passed this year, the 2011 RMD is HIS RMD for 2011 based on the 12/31/2010 account balance, providing that he passed on or after his required beginning date. If he distributed only part of his RMD before passing, the rest of it needs to be distributed to the trust by year end. If he passed prior to his required beginning date, there is NO RMD for 2011.
With respect to the trust, it needs to be determined if the trust is qualified for look through treatment per the requirements listed in Pub 590, p 38. Most trusts do qualify, but after the owner’s death the trust must be submitted to the IRA custodian no later than 10/31/2012. If the trust is qualified, the RMDs for the BDA must be based on the oldest individual beneficiary of the trust. If there are any comparatively old beneficiaries listed, the only solution is for them to disclaim within 9 months of owner’s death. The separate account rules for setting up a BDA for each beneficiary do NOT apply to trusts, so the youngest beneficiaries RMD comes out at the same rate as the oldest.
Beyond that, the terms and provisions of the trust determine what other options may exist.
You may want to read Bruce Steiner’s article on trusts as IRA beneficiaries:
http://www.kkwc.com/docs/AR20041209132954.pdf