Trust beneficiary and separate accounts

Submitted by Bruce Claassen on Mon, 2017-11-20 21:31

We are in the year following date of death (died in 2016), and still trying to get IRA’s distributed.
Decedent left IRA funds to her Revocable Trust, and trust has one individual beneficiary and three charity beneficiaries. We are in the process of submitting all paperwork so IRA’s will be distributed into inherited IRA’s for each of the beneficiaries (including charities), but aren’t sure it will be completed by the end of the year.

The way I understand the “separate accounts” rule, if they get the accounts separated by December 31st, 2017, the individual beneficiary will be able to use her own age to determine the 2017 RMD, and the charities will calculate their own (assuming they don’t liquidate the account immediately).
If the IRA’s don’t get distributed into the inherited IRA’s by the end of the year, then my understanding is we have to combine all inherited IRA’s for the purposes of calculating the RMS and use the decedent’s life expectancy based on the single life table.
Would anyone care to comment whether there is any flaw in the above understanding?

Has anyone ever seen precedence where the individual could take their RMD from the inherited IRA after Dec 31st, and cite the delay from the investment companies in getting the paperwork completed as “reasonable cause?”



Submitted by Alan - IRA critic on Tue, 2017-11-21 01:20

  • Yes, a few flaws in your statements. If the trust is allowed to terminate, the trustee can still assign the IRA to the trust beneficiaries as individual inherited IRAs. But that will not change the RMD because the separate account rules do not apply to trusts. Further, the trust could have been a qualified trust for look through if the charities had been paid in full by 9/30/17 (the beneficiary determination date), but they were apparently not paid off. Accordingly, the trust is not qualified for look through treatment and the IRA must be distributed over the remaining single life expectancy of the decedent, whether separate inherited IRAs are created or not. This assumes the owner passed on or after his RBD, which I think you are inferring. The stretch may well not be much more than if the 5 year rule had applied.
  • For self reported RMD delinquencies, the IRS is usually agreeable to waive the 50% penalty when a proper 5329 specifying the “reasonable cause” for the delay is filed and the late RMDs made up before filing the 5329.
  • To be clear, inherited IRAs can still be established for each beneficiary, but that action no longer will have any impact on the RMD divisor, which for 2017 is 1.0 less than the single life table divisor using the decedent’s age at the end of 2016. Trust is also responsible for completing the decedent’s RMD for 2016 if that was not done prior to death.

Submitted by MIKE KRUCHTEN on Tue, 2017-11-28 13:43

If the charities were not paid out by 9/30 then how can the trust allow a look through? My understanding was the “look through” was only granted to a qualified trust which can only be qualified in this case if the charities would have been paid by 9/30. Therefore, would the Trust not be required to be the owner of the Beneficiary IRA vs. the human bene’s named in the Trust? I realize the RMD factor is the same regardless if Trust is owner of Bene IRA or Trust bene’s.

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