Testamentary Trusts established by Last Will and Testament as IRA Beneficiary

Submitted by Jonathan Sard on Mon, 2015-03-23 19:33

A client has twin boys and her IRA is worth 100k and she has a straightforward estate. She named the “Trustee of the Testamentary Trusts established by my Last Will and Testament” as the IRA beneficiary. Her will establishes equal trust shares for each child at her death and I believe that each trust will qualify as a designated beneficiary for IRA purposes and that the twins can take RMDs based on the remaining life expectancy of the oldest child (which would be the same). However, I do not believe the trusts will qualify as look through (conduit) trusts. Does this pose a potential problem down the road that they are not conduit trusts. Are there any pros and cons to having it set up this way? Thank you!!



Submitted by Bruce Steiner on Tue, 2015-03-24 03:42

  • Conduit trusts rarely if ever make any sense.  If the beneficiary lives to life expectancy, nothing will be left in the trust.  All of the IRA benefits will be thrown into the beneficiary’s estate and exposed to the beneficiary’s creditors and spouses, thus defeating the benefits of the trust.
  • She has to decide whether she thinks it’s worth the effort to administer two $50,000 trusts.
  • For more on trusts as beneficiaries of retirement benefits, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  http://www.elderlawanswers.com/Documents/Trusts%20as%20Beneficiaries%20of%20Retirement%20Benefits.pdf.

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