Trust with special needs subtracts misses deadline to remove charity from trust for IRA
A trust set up with 2 special needs subtrusts was beneficiary of an IRA for about 500k. A charity was also a beneficiary of the trust. The trust did not remove and care for the charity by the deadline.
The trust has not yet been divided. The charity is a 1/3 beneficiary, the 2 special needs trusts split the remainder.
Is it possible for the charity to take its 1/3 solely from the IRA? The total estate is about 1mil. Having the charity take its portion from the IRA minimizes the resulting issues for the other beneficiaries.
And is it correct that the remaining IRA balance will now have to be paid out over 5 years? And if so from what date? Date of death or ???. And when paid out, am I correct that the proceeds are coming out of the IRA wrapper-the subtrusts would recognize the tax, but the proceeds would then remain in the subtrusts getting the special needs protections?
Scott Foster
Permalink Submitted by Alan - IRA critic on Fri, 2019-05-31 00:49
A non qualified trust falls under the 5 year rule only if the IRA owner passed prior to the RBD. The 5 years would end on 12/31 of the 5th year after the year of death. For deaths after the RBD the distribution period is the remaining life expectancy of the deceased owner. No IRA custodian is going to overlook the stated beneficiary on the IRA, any distributions can only be made to the trustee of the trust. There would still be the usual SNT benefits, but of course the IRA will be distributed much faster than planned.