Contingent Beneficiaries stretch With Trust as Designated Beneficiary

Submitted by William Adams on Tue, 2018-07-03 18:23

You say that it is “generally” the case, where a trust is the designated beneficiary and there are contingent beneficiaries, that all of the beneficiaries get the stretch period of the oldest beneficiary. Your use of the qualifying word “generally” seems to indicate there is a way for each individual to get the stretch associated with his/her age. My lawyer, currently setting up a trust for my wife and I, says he can ensure that each individual named as a contingent beneficiary gets the stretch associated with his/her age. Please discuss this possibility and inform me as to how this can be accomplished.
Bill



Submitted by Alan - IRA critic on Wed, 2018-07-04 00:51

There is no way for each beneficiary of the trust to use their own life expectancy for RMDs if there are multiple beneficiaries, because the separate account rules do not apply to trust beneficiaries. If the contingent beneficiary is the oldest beneficiary, then all beneficiaries must use the age of the contingent beneficiary for RMDs.  However, if a beneficiary of the trust was clearly able to inherit only upon the death of a beneficiary and was considered a “mere successor beneficiary”, their age would not be considered.  

Submitted by David Mertz on Wed, 2018-07-04 01:30

  • I suspect that the word “generally” is meant to cover the case where the trust beneficiaries include a beneficiary that is not an individual, say, a charity.  In that case, RMDs would be based on the beneficiary that is not an individual and none of the ages of the beneficiaries that are individuals would be relevant to determining RMDs.
  • As Alan indicated, there is no language that the lawyer can add to the trust document that will allow the multiple beneficiaries of the trust to base RMDs on their own separate ages (other than the oldest beneficiary on which all RMDs would be based, of course).  Language that allows look-through treatment is what allows the age of the oldest beneficiary to be used rather than basing RMDs on the trust as being not an individual.
  • What is the reason for making the trust the beneficiary of the retirement account rather than naming the individuals directly as beneficiaries?  To allow each individual to use their own age, the beneficiary designation for the retirement account should name the individuals directly as beneficiaries or a designate a separate trust for each individual for which there is reason to have a trust.

Submitted by Bruce Steiner on Wed, 2018-07-04 02:34

  • Our clients generally provide for their children in trust rather than outright.  That keeps the children’s inheritances out of their estates, and better protects their inheritances from their creditors and spouses.
  • If a child dies without leaving any issue, and without exercising his/her power of appointment, the balance of the child’s trust will usually go in trust for the other children (o their issue).  So the oldest child will usually be the measuring life for each child’s trust.
  • Bruce Steiner

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