I am reading The Retirement Savings Time Bomb and my take away is to not name a trust as the IRA beneficiary because the trust can’t be a “Designated Beneficiary”.
I’m reviewing my trust document there is specific language that states that the Trust is to maintain a “Designated Beneficiary” status.
Am I missing something here?
Dave
A trust may be treated as a designated beneficiary of an IRA if the trust qualifies as a “look-through” trust. The life expectancy of the trust beneficiary with the shortest life expectancy will be used for the “stretch” option.
It’s my understanding if the trust doesn’t have the proper wording to be a pass-through, conduit, or see through trust. The two payout options are lump sum or out in 5. In today’s Slott Report, it states otherwise. That a non-see-through trust can still stretch based off the original owner’s life expectancy because he is over 70.5. Is this truly an option for trusts that are not permitted to stretch an IRA?Any elaboration is greatly appreciated. Thanks! Here’s the post:Question:We will be opening an IRA based on the following facts:1. The IRA owner passed away after RBD.2. The primary beneficiary is a trust – accumulation trust, does not qualify for see-through status3. The contingent beneficiary is charityQuestion: Knowing that we use the decedent’s life expectancy and reduce by one each year, how is the IRA titled? Is it in the decedent’s name, and if so, what SSN is used? Or do we use the primary beneficiary, (trust, but only the child is the beneficiary) the son’s SSN?Thanks,LucyAnswer:An accumulation trust can qualify for see-through status as long as it meets all the requirements. We will assume that this trust is not a designated beneficiary because it did not meet the see-through rules. However, it is still the beneficiary of the IRA. This means that the inherited IRA will be titled in the name of the decedent for benefit of the trust with the trust’s tax id number being used. For example, “Smith Family Trust” as beneficiary of James Smith, deceased. Because the IRA owner died after his required beginning date and the trust did not qualify as a see-through trust, the RMDs will be paid to the trust using the deceased IRA owner’s single life expectancy, determined in the year of his death, reduced by one each subsequent year.
The ANSWER is correct. The IRA custodian is uninformed, and it is not likely that the IRA agreement contains more restrictive distribution requirements than the IRS RMD Regs, although that is possible.
Permalink Submitted by Alan - IRA critic on Tue, 2017-10-10 17:08
There are good reasons to name a trust as beneficiary in some cases, while in other cases the individual beneficiary should inherit directly. IF a trust is called for, special attention should be paid to make sure it is qualified for “look through” treatment which allows the RMDs to be based on the oldest trust beneficiary. If the trust is not qualified it is treated the same as an estate, with the stretch substantially reduced. Apparently, your trust intends to be qualified but there also has to be specific conditions stated, not just the wording you listed. There is also a time limit for the trustee to send trust info to the IRA custodian after death, so if the trustee misses that deadline the trust is not qualified regardless of the required other provisions being in place.