IRA Holder with No Beneficiary
Husband and wife have Revocable Living Trust. Wife dies. Husband has no beneficiary listed on his one million dollar IRA account ( kept separate from the Trust, of course ). Husband dies. Only beneficiary and also successor trustee in the Trust is his adult child. Does the Pourover Will now capture the IRA money? After going through Probate on the IRA money, does this money then get put into the Trust? If so, can the adult child still avail himself of the “non spouse inherited IRA stretch”, and take RMD’s over his life expectancy? I believe not. Moreover, if the IRA money is moved into the Trust, isn’t that considered a “distribution”? And aren’t all IRA distributions subject to ordinary income tax rates? A conundrum for sure.
Permalink Submitted by Alan - IRA critic on Thu, 2019-07-25 21:47
First, the IRA contract must be scrutinized to determine the default beneficiary. Spouse has passed, so unless the IRA indicates the children, the estate would indeed become the default beneficiary. Pour over will should make the trust the eventual beneficiary, but it will not be qualified for look through. If husband passed after his RBD, then the available stretch is the remaining non recalculated LE of husband. That should be longer than the 5 year rule, but still far short of adult child’s LE. The trust would inherit the IRA, it would not be a taxable distribution until actual distributions are taken from the inherited IRA. If the trustee has authority to terminate the trust, it could then be assigned to the child as an individual inherited IRA, but that would not affect the RMD calculation. So you are correct except that the trust inheriting the IRA is itself not a distribution.