IRA – Account in DBT vs Inherited IRA
My mother left an IRA to a Designated Beneficiary Trust in my name.
I am 61 and the trust provides that any beneficiary over 45 can withdraw all or a any portion of the trust at any time. I am the sole beneficiary of the trust. The trust qualifies for look through treatment. I want to use the stretch provisions for RMDs.
My custodian is agreeable to setting up my account as an inherited IRA in my name as inherited from my mother. As I understand it if I have the account in the trust’s name I will have to file tax returns for the trust. I would like to have the benefits of the stretched out RMDs along with ease of administration and filing costs. If the custodian will set it up as an inherited IRA can I rely on this?
Permalink Submitted by Alan - IRA critic on Sun, 2014-03-02 00:47
One advantage of keeping the trust is protection of the assets against creditors or spouse’s. If you feel you do not need such protection and the trust provisions allow for termination, you can proceed to have the IRA assigned out of the trust and directly to you. If the trust was qualified as you say, your RMDs will still be based on your single life expectancy (Table I of Pub 590) whether you retained the trust or assigned the IRA to yourself as beneficiary. There should be no issues with this.
Permalink Submitted by Bruce Steiner on Mon, 2014-03-03 02:31
Since the beneficiary can withdraw the trust assets, the trust will be included in the beneficiary’s estate. At least in New York, if the beneficiary can withdraw the trust assets, the trust won’t provide any creditor protection, though in some states inherited IRAs are protected from creditors in any event. Why would anyone create a trust in which the beneficiary has the right to withdraw the trust assets?