Trust as IRA beneficiary, Beneficiary IRA option

Submitted by Ryan Smith on Sun, 2014-05-18 00:57

I have a client that passed away and her attorney had her trust as the beneficiary of her IRA. Her children are the two sole named beneficiaries of the trust. They are 69 and 70 years old. I have an attorney that has found some regulations that state that because the beneficiaries are identifiable that we can split the IRA into accounts for each of the child, but the RMDs have to be taken out based on the life expectancy of the oldest child. Can you please provide some insight and guidance on this payout option?



Submitted by Alan - IRA critic on Sun, 2014-05-18 02:08

This rule applies only if the trust is qualified for look through treatment per p 40 of Pub 590. There are some time dependent actions that the trustee must satisfy for the trust to qualify. If so, it is correct that the RMDs are based on the oldest trust beneficiary’s life expectancy. The RMDs must be paid to the trust unless the trust is allowed to terminate, but even if the trust terminates and separate inherited IRA accounts can therefore be established, the RMDs for both will still be based on the 70 year old. Until the trust terminates all IRA Distributions can be made only to the trustee of the trust and either retained in the trust or passed through to the trust beneficiaries.

Submitted by Ryan Smith on Tue, 2014-05-20 19:02

It appears that the look through provisions are pretty easy to pass, right?1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus. 2. The trust is irrevocable or became, by its terms, irrev-ocable upon the owner’s death. 3. The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the owner’s bene-fit are identifiable from the trust instrument. 4. The trustee of the trust provides the IRA custodian or trustee with the documentation required by that custo-dian or trustee. The trustee of the trust should contact the IRA custodian or trustee for details on the docu-mentation required for a specific plan.

Submitted by Bruce Steiner on Sun, 2014-05-18 15:05

Why would someone create a trust, make it the beneficiary of her IRA, and then have the trust pay out upon her death?  If she wanted her children to receive their shares outright, she could have named her children as the beneficiaries of her IRA?  Alternatively, she could have left her IRA to trusts for her children.  That would have kept the IRA benefits out of her children’s estates, and better protected them against her children’s creditors and spouses.  Given the children’s ages, they might want to consider disclaiming, which might allow for a longer stretch.  Bruce Steiner, attorney, NYC, also admitted in NJ and FL.

Submitted by Ryan Smith on Tue, 2014-05-20 18:55

Bruce, small town attorney 90 year old client that we just met.  If they disclaim the assets does that mean they keep the trust going every year and take distributions from the trust?  I guess I’m not sure how the disclaiming works.

Submitted by Bruce Steiner on Tue, 2014-05-20 19:38

If the children disclaim some or all of their interests in the trust, then (unless the trust provides otherwise), the disclaimed interests pass as if the children had predeceased the IRA owner.  If the attorney isn’t familiar with this, he/she should either learn about the subject or bring in co-counsel.

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