Attorney advising clients to list trust as contingent beneficiary

Submitted by Cathy Mendell on Wed, 2017-01-04 20:47

An attorney that I refer clients to insists that a stretch can be accomplished on an inherited IRA with the trust being listed as the contingent beneficiary. I realize that he is correct, but don’t the beneficiaries loose individual age calculations – having to base RMDs on the oldest person in the trust?

Can someone refer me to an explanation that I can use to back up my advice to my clients?

We always recommend that individuals are listed as beneficiaries, not trusts.



Submitted by Alan - IRA critic on Wed, 2017-01-04 21:08

Usually, use of the oldest trust beneficiary for RMDs will provide a good stretch. Of course, if the oldest beneficiary is much older than the other beneficiaries then the stretch is very limited. And to use any of their ages instead of the non individual RMD calculation, the trust must be qualified for look through treatment, although most trusts are. Trust can provide for control of distributions and offer creditor protection as well as keeping the IRA out of their estates for estate tax purposes. Obviously, having a good trustee is important and the trust will have to file a 1041 each year.

Submitted by Bruce Steiner on Wed, 2017-01-04 23:34

  • What is “the” trust?
  • Our clients generally provide for their children in separate trusts for their benefit rather than outright.  This keeps the children’s inheritances out of their estates for estate tax purposes, and better protects their inheritances against their creditors and spouses.
  • Married clients will usually name the spouse as primary beneficiary, and trusts for their children as the contingent beneficiaries.  You could also create an administrative trust for the children that divides into separate trusts for each child.  The result is the same.  It’s basically a matter of style.  The former is easier to adminster after death, while the latter is easier to explain to the IRA custodian.
  • Each child is usually a contingent remainder beneficiary of the other children’s trusts.  In other words, if a child dies without leaving any issue, and without exercising his/her power of appointment, the balance of his/her trust will usually be added to the other children’s trusts (or if a sibling is deceased, the deceased child’s share will be added to the trusts for the deceased child’s children).  
  • So each child’s trust will probably be limited to the oldest child’s life expectancy.
  • It usually doesn’t much matter, since the children are usually close in age.  However, if there’s a large age difference, then you might exclude the older child as a contingent remainder beneficiary of the younger child’s trust.  In that case, if the younger child dies first, without leaving any issue and without exercising his/her power of appointment, the balance of the younger child’s trust will go in trust for the older child’s children.
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

Submitted by [email protected] on Fri, 2017-01-06 15:09

isn’t the question – will naming a trust as continent, eliminate the primary’s ability to stretch over their own lifetime?  The answer to that is no, but I think that was the question being asked.

Add new comment

Log in or register to post comments

Sign up to receive The Slott Report each week