SECURE Act

Submitted by Beverly Bonya on Fri, 2020-08-21 11:44

Question 1: I am preparing a Special Needs Trust(SNT) for a disabled child(DCI) of an IRA owner. The remainder beneficiary, upon the death of the DCI, will be her brother who is 6 years older. Has the IRS provided any clarification as ti which life will apply?

Question 2: After the death of the DCI, the IRA owner would prefer to terminate the trust and have the IRA distributed intact to the remainder beneficiary. Assuming that such a transfer is permitted by the IRA provider, will the remainder beneficiary still qualify for a 10 year payout?

Thank you.



Submitted by Alan - IRA critic on Fri, 2020-08-21 14:47

  • As long as the DCI meets the definition of an EDB and the SNT meets the “look through” qualified trust requirements, the LE of the EDB will determine annual RMDs for the life of the EDB. Upon EDB’s death, a new 10 year rule will apply to the successor beneficiary. The SNT should clearly state that no one other than the EDB has any right to trust assets until the death of the EDB.
  • Upon owner’s death, a certification of disability will need to be submitted to the IRA custodian. EDB status is based on beneficiary’s situation on the DOD. 

 

Submitted by Beverly Bonya on Fri, 2020-08-21 15:41

Thank you for the response.  I would like to clarify Question 2.  I understand that EDB status of the primary beneficiary of the Special Needs Trust is determined on the DOD of the IRA owner.  In other words, a designated beneficiary who is not a DCI on the owner’s DOD is not an EDB and not eligible for life expectance distributions. I am focusing on what happens to the trust and the IRA after the death of a the primary beneficiary who was a DCI on the owner’s death.  Can  the trust agreement give the trustee the option to terminate the trust  and distribute the IRA intact to the  remainder beneficiary(RB) who could  withdraw funds over 10 years or some shorter period of time? I assume, if we continue the trust after the death of the DCI, the trustee could continue to make withdrawls for the benefit of the RB for a period not to exceed 10 years. However, the owner sees no reason to continue with the complications and cost of a trust for the RB who is an emanciapated capable adult.  Perhaps, a better way to state the question is whether we can terminate the SNT after the death of the EDB and distibute the IRA intact to the RB without accelerating the 10 years the RB would otherwise have to withdraw?  Thank you.

Submitted by Alan - IRA critic on Fri, 2020-08-21 16:07

While SNT requirements might vary somewhat between states, in general there is no reason that an SNT trustee would not have the discretionery power to terminated the SNT and assign the inherited IRA to the successor beneficiary upon EDB’s death. That would eliminate filing a 1041 and otherwise simplify things by eliminating the function of the SNT trustee, although in most states it would also eliminate the creditor protection afforded by the trust. The 10 year rule will apply to the successor regardless of termination of the trust. 

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