Irrevocable trust as primary beneficiary can accts be stretch IRAs
Have mother’s IRA account, set up with irrevocable trust as primary beneficiary. Beneficiaries are 4 children. Mother passed away and 4 children received a taxable distribution. CPA says he sees no way to stretch IRA’s from the trust.
It seems if the accounts hadn’t paid out, they could have set these up as a stretch based on the oldest child. Your thoughts…
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-14 21:47
Right, if the trust is qualified for look through treatment, the IRA could have been stretched using the life expectancy of the oldest trust beneficiary. Did trustee request a larger distribution than needed to meet RMD requirements?
Permalink Submitted by Barbara Lane on Thu, 2013-11-14 22:55
No, that wasn’t the case. The trustee (one child) said he didn’t want to deal with the trust any longer, and he just said to cash everything out. The accountant said he didn’t see a way that it could be continued as IRA accounts. The trustee wasn’t advised that there were other options.
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-14 23:12
There were other options assuming the trust provisions provided for the trustee to distribute various assets out of the trust or at least the IRA out of the trust. Either way, a lump sum distribution eliminated future tax deferral and may have increased the marginal rates of each beneficiary. Either the CPA was incorrect or the trustee violated the trust provisions, but it is not clear which of these applied here. If the trust provisions allowed the trustee to distribute the IRA out of the trust, the IRA could have been assigned to the beneficiaries and each beneficiary could have made their own decision on the rate of distributions from the IRA. This would not have changed the RMD, but it would have given the beneficiaries a chance to manage their own inherited IRA and take distributions in addition to the RMD as needed. It is possible that this action could expose the trustee to litigation for damages from the other beneficiaries.
Permalink Submitted by Barbara Lane on Fri, 2013-11-15 19:36
Thank you very much for your responses. So that I can have backup, do you have any PLR’s or tax code, etc. that will backup the answer?
Permalink Submitted by Alan - IRA critic on Fri, 2013-11-15 19:51
Here is another discussion on transferring an IRA out of a trust (only if the trust permits of course). http://www.ataxplan.com/bulletinBoard/ira_providers.cfm
Permalink Submitted by Barbara Lane on Mon, 2013-11-18 20:43
Thank you Alan. I appreciate you giving me the backup.
Permalink Submitted by Bruce Steiner on Fri, 2013-11-15 03:44
Why would an IRA owner leave an IRA to a trust that immediately pays out to the children, instead of either leaving the IRA to the children outright (without running it through the trust), or leaving it to the children in separate trusts for their benefit?The other children should consult with competent counsel who can advise them as to what rights they may have.