IRA with Trsut as beneficiary
IRA owner died with his revocable trust as beneficiary. 3 children are the only beneficiaries of the trust; can you split the IRA into 3 beneficiary IRAs immediately? or do you need to set up a beneficiary IRA for the trust and then split it?
Permalink Submitted by Alan - IRA critic on Tue, 2017-02-21 17:47
The terms of the trust determine whether the inherited IRA can be assigned to the beneficiaries of the trust individually. The trustee may or may not have the discretion to terminate the trust. If allowed, the RMDs are still based on the oldest beneficiary of the trust IF the trust is qualified for look through treatment. The trust information needs to be submitted to the IRA custodian no later than 10/31 of the year following the year of the IRA owner’s death. The IRA will initially re titled with the trust as beneficiary. This is important because if the trust is not qualified and the IRA owner passed prior to the RBD, the 5 year rule will apply whether individual inherited IRAs can be created or not.
Permalink Submitted by Robert Smith on Tue, 2017-02-21 20:03
Thank you. The owner passed after the RBD and took the RMD prior to his death in the year of death (2017). Who determines if the trust qualifies as look through? Assuming the trust is qualifed, the indivdual beneficary IRAs can be created, correct? But the RMDs for each wojuld be based on the oldest beneficairy of the trust, correct? How would a custodian monitor the calculation age? If the Bene IRA stasy as the trust, is the RMD based on the oldest bene or is each calculated seperately? If the oldest beneficary takes their potion in a lump, is the next oldest bene used as the calculation age?
Permalink Submitted by Alan - IRA critic on Tue, 2017-02-21 23:39
Individual inherited IRAs are only allowed if the terms of the trust allow it or allow the trust to be terminated by the trustee. Whether the trust is qualified or not is immaterial to the creation of individual inherited IRAs, but it DOES affect the RMD requirements. Trust qualification is determined by a combination of the IRA custodian and the IRS in the event of an audit. Most trusts are qualified, but even if drafted perfectly the trust info must still be sent to the custodian by the deadline or it will not be considered qualified. For death after the RBD, the RMDs are based on the oldest trust beneficiary if qualified or remaining life expectancy of the decedent if longer, and on the remaining life expectancy of the decedent if not qualified. Once the RMD is determined by the above criteria it remains the same whether the distributions are made to the trust or if individual inherited IRAs are created. Finally, if a beneficiary receives a full distribution before the beneficiary determination date, they are not counted in determining RMDs.