Inherited Ira monies

Submitted by Suzanne Miller on Thu, 2015-09-17 16:04

My mother 80 yrs old has Ira monies that she has already started paying her required minimal distribution. She would like To pass it on to myselfandmy sister with the least amount of taxes going to the government. DO I understand that we will have to pay the required min dist as soon as we inherit the money? Is there an advantage to putting this money in an Ira trust. Thank you suzanne



Submitted by Alan - IRA critic on Thu, 2015-09-17 17:09

Yes, when you inherit your share of her IRA, you will have to take annual RMDs beginning the following year and complete mother’s year of death RMD if she did not complete it. There is no way to avoid reporting the taxable income for these RMDs whether you have trust formed to be the beneficiary or not. In fact, if the RMDs are accumulated in the trust the tax rate will be higher than your own tax rate. If the RMDs are passed through the trust to you they will be taxed at your own rate.



Submitted by Suzanne Miller on Thu, 2015-09-17 22:08

ihow does it work if the money is left in a trust then it’s passed on to.Me personally.mentioned that iin your last answer to my original question you said that the tax rate would be less  if the trust passed to me individually. Thanks. Suzanne



Submitted by Alan - IRA critic on Thu, 2015-09-17 22:48

If the trustee of the trust passed through the RMD to you annually, you would receive a Form K 1 from the trust and you would report the K 1 income on your own return. Your tax would be at your rate which is the same rate you would pay if you inherited the IRA directly without the trust.  You rate would be the same either way, but if the trust retained the RMD and did not pass it through to you the rate the trust would pay would be higher than yours unless the annual RMD was very small.



Submitted by Bruce Steiner on Fri, 2015-09-18 02:35

  • If she provides for her children in trust rather than outright, the children’s inheritances won’t be included in the children’s estates for estate tax purposes, and will be better protected against their creditors and spouses.

 

  • To the extent the trustees make distributions to the children, unless the children use the money to live on (after using up their own money), this will defeat the benefits of the trust.

 

  • There are some special rules governing trusts that are beneficiaries of IRA benefits.  See my article on this subject:  http://kkwc.com/wp-content/uploads/2015/04/AR20041209132954.pdf#toolbar=1&navpanes=0&nameddest=self&page=1&view=FitH,0&zoom=80,0,0. 


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