Trust Named As Beneficiary

Submitted by Gregg Guiol on Tue, 2017-01-31 17:27

I have a client who is of age (well past 70 1/2) and she passed away in January 2017. She had not taken her 2017 RMD as of the date of death.

The client designated a ‘Family Trust’ as the primary beneficiary for this IRA account.

The way I see this being handled is – First the RMD must be met. So the calculation would be done and there would be a RMD directly to the ‘Family Trust’ … Once that is completed, the balance of the assets within the IRA would then be distributed directly to the ‘Family Trust’.

My clearing house is telling me that I must set up a ‘Bene IRA’ in trust name. Then the assets would be transferred from the old IRA to the new ‘Bene IRA’ (the title of the new ‘Bene IRA’ would be “The Doe Family Living Trust BENE IRA” John Doe Trustee

Then distributions would be taken out of the newly created ‘Bene IRA’ …

Does this sound right ? I have always understood that once someone passes and an RMD has not been met for the year of death, the RMD must take place prior to any movement of the balance of assets within the IRA.

Please let me know your thoughts and possibly if you could provide some IRS code that I could utilize with the clearing house to guide them down the proper road on this …

Thanks as always

Gregg Guiol



Submitted by Alan - IRA critic on Tue, 2017-01-31 18:53

  • Gregg, the clearing house is correct. Once the IRA is retitled with the trust as beneficiary, the year of death RMD can be taken any time up to year end since this is the decedent’s 2017 RMD. It does not matter if that RMD is distributed from the original re titled IRA or from a new inherited IRA that received a direct transfer from the original account. These transfers are not reported on a 1099R because they are not distributions. The only IRS Reg here states that the beneficiary must complete the year of death RMD if the decedent did not. It does not limit that RMD to any particular account or to any particular beneficiary in a case where there are multiple beneficiaries.
  • Most IRA custodians require the transfer to a new account, in this case with the trust EIN, to provide a clean break from the decedent’s IRA under the decedent’s SSN rather than changing from EIN to SSN on the same account and continuing that account.

Submitted by Gregg Guiol on Tue, 2017-01-31 21:53

As always … Many thanks for your input !!!

Submitted by Gregg Guiol on Mon, 2017-02-06 17:35

Sorry, but have another question on this … Once the account is in ‘Bene’ name and the RMD is satisfied.  Does the account have the capability of deferring distributions ?  Kind of like if an ‘Individual’ (non-spouse) was the beneficiary.Thanks -Gregg

Submitted by Alan - IRA critic on Mon, 2017-02-06 18:48

Sure, other than the RMD the trustee is not required to take additional IRA distributions to the trust unless the trust provisions require it or the trustee chooses to. Some trusts are drafted to allow the trustee to terminate it and then assign the IRA to the trust beneficiaries directly. In most cases, not distributing amounts in excess of the RMD is beneficial and certainly a lump sum distribution to the trust will trigger taxes on the entire IRA balance and end any additional tax deferral.

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