Trust as Beneficiary

Submitted by Sarah Murphy on Thu, 2020-03-05 00:04

Hi,

What happens when a trust is an IRA beneficiary and the trust simply distributes out all assets fully to the beneficiaries rather than in trust for the beneficiary? Assume non-eligible designated beneficiary. Is it possible for this arrangement to qualify as a see-through trust and then follow the 10-year rule? How would the inherited Ira be titled? In the name of the trust beneficiary or the trust? Or, would the trust be considered a non-designated beneficiary?

Thanks!



Submitted by Alan - IRA critic on Thu, 2020-03-05 01:11

  • If the trust is qualified for look through, and the trustee is allowed by the trust provisions to distribute the IRA to the trust beneficiaries, the trustee would have the IRA assigned to the various beneficiaries, who would be subject to the 10 year rule. Likewise, if the inherited IRA remained in the trust, it would also be subject to the 10 year rule.
  • However, if the trust was not qualified and the owner passed prior to the RBD, the 5 year rule applies. If the owner passed after the RBD, the remaining life expectancy of the owner would be used for RMDs paid to the trust or paid to the beneficiaries if the trustee assigned the IRA to the beneficiaries. 
  • Depending on how the IRS Regs to follow clean up the Secure Act wording, certain non DBs might end up with a longer stretch than DBs subject to the 10 year rule. This would be the case of IRA owner passes between 73 and 80, and trust is not qualified, perhaps because the trustee declines to provide trust info to the IRA custodian by the 10/31 deadline.

Submitted by Bruce Steiner on Fri, 2020-03-06 03:58

  • Why would anyone create a trust to receive the IRA benefits and then have the trust distribute its assets immediately?  It would be simpler to name the beneficiaries as the beneficiaries of the IRA, and not run the IRA benefits through the trust.
  • Bruce Steiner

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