IRA Trust

Submitted by charles nemes on Tue, 2018-02-13 16:28

I have a client that would like his IRA to go to his wife first (100%) then to their son 75% and her daughter (from another marriage) 25%. However, the husband doesn’t trust his wife to split the IRA 75%/25% if he goes first as she could rearrange the beneficiaries any way she’d like.
if we construct an IRA Trust, and name his wife as the primary beneficiary of the IRA Trust, would the RMD’s (he’s currently 71 years old) she receives be based on his life expectancy or hers (primary beneficiary)? And, when she dies, would a Bene IRA effectively be created whereby their son’s age would determine the RMD for his portion and his half-sister’s for hers?
Thanks,
Charlie



Submitted by Deena Wagner on Tue, 2018-02-20 00:09

Are there any undesired tax results if your IRA is named as beneficiary of your trust:  Does this negate the ability of the final benificiary to use their age for the RMD and stretch the time to withdraw the funds?  Does it change the tax rate for the final benificiary? 

Submitted by Alan - IRA critic on Tue, 2018-02-20 00:52

You mean the trust would be the beneficiary of the IRA. If the trust directly inherits an IRA, the RMDs depend on whether the trust is qualified for look through treatment. Most trusts do qualify. In that case, RMDs would be calculated using the oldest beneficiary of the trust, including any remainder beneficiaries. If the trust passes all RMDs through to the beneficiaries, the income will be taxed at the beneficiary’s individual marginal rate. If the trust accumulates this income in the trust, it will be taxed at the much higher trust rates.

Submitted by Deena Wagner on Tue, 2018-02-20 22:30

Am I reading this correctly?  For example of my understanding – The trust would pass the funds to the 3 beneficiaries and create 3 Inherited IRAs at Fidelity.  Then each of the beneficiaries weould use the RMD calculation of the oldest beneficiary to determine each years RMD and each would pay taxes at their individual rate.If none of them are 70 1/2 do they have to start taking RMDs right away.  If only the oldest is 70 1/2 can the others wait to start taking RMDs?Thank you for your help – I want to get this correct and save them as much taxes as possible.There currently is a Roth IRA also.  If this passed on without any taxes since taxes have been paid upfront?  Any required time frames for Roths to be distributed?

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