IRA under a Trust

Submitted by David Schwartz on Wed, 2013-07-24 00:27

Tried searching through the forums (“fora”?) but .. of course .. each situation is unique….

My father established a Trust, prior to his death, and granted his two investment accounts to it – a taxable account and a Rollover IRA. He passed away and so the Trust became Irrevocable, and … the IRA became an Inherited IRA (no problem at Fidelity).

Now the questions are:
1. Can this Inherited IRA be split into equal share ‘successor’ Inherited IRAs “FBO” each of the named Trust beneficiaries?
and,
2. Should the RMDs be calculated on my father’s age, or on the age of the oldest surviving beneficiary?

Thanks in advance for all your help, tips and advice!!!



Submitted by Alan - IRA critic on Wed, 2013-07-24 17:38

 

  1. Only if the trust provisions allow assignment of the IRA to beneficiaries or allow termination of the trust.
  2. If the trust meets the requirements of “qualification” per Pub 590 (most do), the RMDs are based on the oldest trust beneficiary whether made to the trust or to an inherited IRA assigned to the trust beneficiaries. If the trust does not meet those requirements, the 5 year rule applies if your father passed prior to his RBD, or his remaining life expectancy if he passed on or after his RBD.


Submitted by Bruce Steiner on Thu, 2013-07-25 02:46

It doesn’t make sense for someone to create a trust, leave an IRA to the trust, and then have the trust immediately end and distribute its assets to the beneficiaries.  It would have been simpler to have named the individuals as the beneficiaries of the IRA, without running it through the trust.  Alternatively, to keep the inheritance out of the beneficiaries’ estates, and to protect it against the beneficiaries’ creditors and spouses, he could have left each beneficiary’s share in a separate trust that would continue.



Submitted by Ed Mangan on Wed, 2013-08-07 21:19

once the person dies the IRA can be distributed. if it goes into a trust the IRA is fully taxed once the money is moved from the IRA. http://www.theslottreport.com/2009/05/trusts-as-ira-beneficiaries.htmlI had my dad change his years ago back to his name as owner and named the beneficaries. otherwise a large IRA taxed at once could result in 35% or more paid to the IRS. now I have the ability to take my newly inherited IRA and the MRDs out over my life time and named my kids as my beneficaries in case I die. the monies may grow for ever this way. hope this helps.



Submitted by Alan - IRA critic on Wed, 2013-08-07 21:31

Well, not quite forever because your kids will not get a new stretch. If you look at your current RMD divisor which is reduced by 1.0 each year, it indicates the number of years the inherited IRA has remaining before the balance is exhausted by RMDs. even if the kids inherit some of it, ie they must continue to use your divisors reduced by 1.0 each year.



Submitted by Bruce Steiner on Wed, 2013-08-07 21:50

Our clients generally provide (in their Wills) for their children to receive their shares in separate trusts rather than outright.  This keeps the inheritance out of the children’s estates, and protects it against their creditors and spouses.  The same reasons for leaving other assets in trust apply to IRA benefits.  In the case of an IRA, if certain requirements are met, the trust can stretch distributions over the life expectancy of the oldest beneficiary.  Unless the amount involved is too small to warrant administering trusts, the solution is to draft the Will so as to comply with the requirements, not (as eaamon suggests) to leave the IRA to the children outright.  For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  http://www.kkwc.com/docs/AR20041209132954.pdf. 



Add new comment

Log in or register to post comments