Another question(s) on naming trusts as beneficiary to IRA
1. I’m aware there is certain wording that needs to be in a trust to make sure the trust qualifies for what Mr. Slott calls a “see-through” trust. Can someone give me an example of what that wording contains? I’m not of course looking for specifics, but just some sense of what language needs to be in the trust to keep the stretch going.
2. Is there any way a trust can be split after death so that beneficiaries of trust don’t have to take distributions based on life expectancy of oldest beneficiary? Or does this need to be accomplished by owner prior to their death.
Permalink Submitted by Alan Spross on Thu, 2012-10-11 01:21
The required provisions are listed on p 36 of Pub 590. They are not overly technical and most trusts meet the requirements. They are:
1) Trust is valid under state law or would be if it had corpus
2) Trust is irrevocable or will become irrevocable upon death of the trustor
3) Beneficiaries are identifiable
4) IRA custodian is provided with a copy of the trust or a listing of key elements of the trust; agreement to notify custodian of any changes
The deadline for providing all this documentation is 10/31 of the year following owner’s death
The separate account rules do not apply to trusts. Therefore, the oldest trust beneficiary including remainder beneficaiaries will determine the RMD divisor. Trusts that split after death do not result in separate account rules for RMDs to be used. For that to happen, there needs to be separate trusts for each beneficiary prior to death.
Permalink Submitted by Jack Thomas on Thu, 2012-10-11 02:20
Thanks.
What about language discussing payment of debts and expenses of the estate and/or anything relating to the Uniform Principal and Income Act (UPAIA)?
Permalink Submitted by Alan Spross on Thu, 2012-10-11 02:28
None of those factors or other almost unlimited trust provisions affect look through qualification unless they were in conflict with the basic requirements.
Permalink Submitted by Bruce Steiner on Thu, 2012-10-11 03:47
The key is to make sure that none of the accumulated IRA distributions can ever go to anyone older than the beneficiary whose life expectancy you’re using to measure the required distributions, or to anyone other than an individual.
See my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/bio.php?r=30 .
Why would a beneficiary of an IRA (whether an individual or a trust) be responsible for the decedent’s debts or the estate’s expenses (except in the occasional case where the beneficiary might be so required by law, in which case there isn’t anything you can do about it)?
Occasionally an IRA owner leaves IRA benefits to a QTIP trust. In that case, the spouse must be entitled to all of the income of the trust. In some states, the default provisions of the state’s principal and income act define “income” in a way that’s inconsistent with general concepts of income. To avoid that concern, you could override any such provisions, either just in the states where that’s an issue, or as a routine matter.