Trust is Beneficiary of Traditional IRA

Submitted by Greg Donar on Fri, 2017-10-06 18:47

Our Father passed with a Traditional IRA . The Beneficiary of the IRA was his trust. In the trust he listed his 5 siblings to have equal share (1/5). The IRA was renamed (new account #) as the Trust being the owner. Can this IRA now be rolled over to 5 separate inheritance IRAs with each sibling being owner of their share?



Submitted by Alan - IRA critic on Fri, 2017-10-06 19:15

  • Your father and his estate attorney had certain goals when a trust is made the IRA beneficiary. Perhaps creditor protection was one of those goals since IRAs left to trusts are protected against creditors of the trust beneficiaries including marital settlements. If this was the intent the trust would probably not include provisions allowing it to be terminated by the trustee. However, if the trust can be terminated under certain conditions, the trustee can assign the inherited IRA ratably to the trust beneficiaries, who can then control their own inherited IRAs. But this will not change the RMD schedule that all beneficiaries must follow.
  • The RMD for the trust is determined first by whether the trust is qualified for look through treatment. Most trusts are, but there is also a time limit for providing the trust info to the IRA custodian. If this is missed the trust is non qualified and the stretch is severely restricted. And even if the trust meets all conditions for qualification, the RMD paid to the trust is based on the oldest trust beneficiary including remainder beneficiaries. If the trust can be terminated and the IRA assigned, the RMDs for all the individual inherited IRAs will continue to be based on the life expectancy of the oldest trust beneficiary.
  • Based on this information, you can probably determine if leaving the IRA to the trust was beneficial or was a mistake. 

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