Trust as IRA Beneficiary

Submitted by David Castelli on Wed, 2015-08-26 16:15

new client, 88 years old, has inherited IRA from newly deceased spouse, whom RMD had started.

Concerned about the tax effect to my new client when she passes

Her inherited IRA has 2 of her kids as beneficiary and a trust as beneficiary(3rd kid 100% beneficiary of trust)

Assuming its a qualified trust, and the state of trust location adopted UPIA.

Looks like distributions will begin year after death of owner and trust will use age of oldest trust beneficiary using single life table

As long as trust pays out 100% of income to beneficiary, I do not see a tax problem. Am I missing something?

Permalink Submitted by Alan - IRA critic on Wed, 2015-08-26 16:47

Client needs to roll this inherited IRA over to her own IRA very soon. Should client pass as the IRA beneficiary, all 3 successor beneficiaries she has named will be treated as such and NOT as designated beneficiaries. The rollover will elevate them to designated beneficiary status. She needs to rename them on her owned IRA.
Once client passes with an owned IRA, separate inherited IRA accounts for the two directly named beneficiaries need to be created by the end of the year following the year of her death. They can then use their own life expectancies for RMDs. An inherited IRA for the trust should also be created, and if the trust is qualified for look through, the age of the oldest trust beneficiary will determine the RMDs to the trust. In other words, the separate account rules do not apply to trust beneficiaries, but they do apply to the other directly named beneficiaries.
Completing the year of death RMD for spouse of client is a requirement of the client this year.

Permalink Submitted by David Castelli on Wed, 2015-08-26 18:08

got it, thanks Alan…..