IRA with Trust as Beneficiary
Client passes away with the trust listed as the beneficiary of the IRA. There are 4 younger beneficiaries and the trust has them as equal benenficiaries (25% each). 2 Questions:
1) Assuming there is a look-through provision in the trust, can the 4 beneficiaries roll their portion into an inherited IRA and begin RMDs based on their own age table after the RMD for the deceased client this year?
2) If there is no look-through provision in the trust, is that technically a “nondesignated beneficiary” on the account, whereby either a) the balance must be taken out of the IRA before being distributed (and thus taxable) OR b) the children need to keep the IRA as is (under the deceased client’s name), taking annual distributions based on the deceased client’s RMD schedule?
Any assistance would be greatly appreciated!
Permalink Submitted by Alan - IRA critic on Thu, 2014-09-25 19:04
Depends on the provisions of the trust. If the provisions allow the trust to be terminated, the inherited IRAs can be assigned to the beneficiaries but that will not change the RMD divisor which must be based on the oldest trust beneficiary including remainder beneficiaries. If the trust fails to be qualified for any reason including not providing timely notice to the IRA custodian, RMDs will be based on the rules for a non individual beneficiary. Those rules call far RMDs to be based on the decedent’s remaining life expectancy if IRA owner passed on or after the required beginning date or the 5 year rule if the owner passed prior to the RBD.
Permalink Submitted by Khalil Andraos on Thu, 2014-09-25 19:56
Even with a look-through provision in the trust? My understanding was that with a look-through provision, the termination of the trust allows the inherited IRA beneficiaries to take RMDs based on their own individual life expectancies. This is the first that I’m hearing about having to take it based on the oldest trust beneficiary’s age…
Permalink Submitted by Alan - IRA critic on Thu, 2014-09-25 21:09
The separate account rules are what enables multiple beneficiaries that are named on the IRA to establish separate accounts and use their own life expectancy. See p 40 of Pub 590, which states that “the separate account rules cannot be used by beneficiaries of a trust.”