Testamentary Trust as IRA Beneficiary
My understanding is that a Testamentary Trust established under a Last Will and Testament will qualify as a Qualified IRA beneficiary. The mother has set up this Testamentary Trust through her Will to help protect her three minor children. Given this set up, will the children be able to take RMDs over their remaining life expectancies if she were to pass away? Will they have to use the oldest life expectancy? Does the trust have to qualify as a Look Through or Pass Through Trust? Thank you!!
Jon
Permalink Submitted by Alan - IRA critic on Fri, 2015-04-10 17:49
If the trust qualifies for look through treatment and is listed as the beneficiary on the IRA agreement, then the trust can take RMDs based on the oldest beneficiary’s life expectancy including any remainder beneficiaries who are not strictly successor beneficiaries. If the trust fails to qualify, the 5 year rule applies if IRA owner passed prior to RBD, and owner’s remaining life expectancy if owner passed after the RBD.
Permalink Submitted by Jonathan Sard on Fri, 2015-04-10 17:59
The mother’s attorney said the Trusts do not qualify as look through trusts, but that they can take RMDs over the remaining life expectancy of the oldest beneficiary because the beneficiary designation qualifies as an appropriate beneficiary designation. This did not sound correct to me, which is what prompted me to ask the question on this post. Any thoughts or suggestions?
Permalink Submitted by Alan - IRA critic on Sat, 2015-04-11 03:11
My reaction is that to use the oldest beneficiary’s life expectancy, the trust MUST qualify for look through treatment. Otherwise, the trust must be treated as a non individual beneficiary.
Permalink Submitted by Richard Ernst on Sat, 2015-05-09 17:16
It’s a Testamentary Trust. Doesn’t that mean that the IRA has to first go through the probate process first??
Permalink Submitted by Alan - IRA critic on Sat, 2015-05-09 17:53
Yes, the will must be probated, so testamentary trusts do not avoid probate.
Permalink Submitted by Bruce Steiner on Sun, 2015-05-10 01:09
No. If an IRA is payable to a trust under the Will, that doesn’t make the IRA a probate asset.
Permalink Submitted by Alan - IRA critic on Sun, 2015-05-10 02:10
Bruce, since the will must still be probated, if the only asset is an IRA with a testementary trust as beneficiary, how long does the trustee usually have to deal with the probate court?
Permalink Submitted by Bruce Steiner on Sun, 2015-05-10 12:56