How to title inherited IRA for Spendthrift Trust

Submitted by Norman Cook on Thu, 2021-03-18 12:54

I understand the advantages and the disadvantages of naming a trust the beneficiary of an IRA. I also understand the technical requirement for the trust to qualify as a “designated beneficiary”. What I do not understand is the actual mechanics how the assets of the IRA are transferred to the trust.

1. Assume an Accumulating Spendthrift IRA Trust for the benefit of John Smith, Jr. Since this is an accumulating trust, I assume it must have its own tax ID number. Am I correct?

2. The next question is how to title this inherited trust. Is the following acceptable? John Smith IRA (deceased 1/15/21) F/B/O Spendthrift Trust, John Smith, Jr., Beneficiary.



Submitted by Alan - IRA critic on Thu, 2021-03-18 15:37

Yes, the trust needs it’s own TIN from the time it becomes irrevocable.
The titling of the inherited IRA after owner’s death can follow the guidelines of the custodian. There could be several acceptable formats, but it must include the name of the decedent and the name of the trust as beneficiary. The example stated is therefore acceptable.

Submitted by Norman Cook on Fri, 2021-03-19 16:50

I still have a few more questions. I will ask these questions as statements of my belief but in fact they are questions. The IRA owner sets up a single Accumulating Spendthrift trust call it “AS IRA Trust”. The beneficiaries are: son A, daughter B, grandson C, and a disabled long-term friend D. The terms of distribution for each beneficiary are different. 
?1 Because inherited IRAs (due to the SECURE Act) must be withdrawn in 10 years there is no advantage to setting up individual trusts for these beneficiaries with different ages? Am I correct? 
 
?2 The IRA custodian beneficiary form can simply list 100% beneficiary to the AS IRA Trust?
 
 ?3 The IRA custodian beneficiary form may also list the actual beneficiaries as continuance beneficiaries, but I do not see a need for this?
 
 ?4 By September 30 after the death of Owner the IRA custodian must retitle the original IRA into 4 separate inherited IRA accounts — one for each beneficiary based on the percent ownership of each of the 4 beneficiaries as listed in the trust document. A shorthand version of the acceptable title of one of the accounts may be “Owner’s IRA FBO son A under trust”. Each of these retitle accounts will have its own unique tax identification number such as “TAX ID A” for son A?
 
 ?5 This retitling is a nontax event?
 
 ?6 The IRA custodian will set up IRA Accumulating Trust accounts for the beneficiaries. These accounts may have any title that is convenient for example “Son A Accumulating Trust” account. This account will use Son A’s “TAX ID A” (the same as the retitled account) NOT his Social Security number as a tax number? Or should it have a DIFFERENT UNIQUE TAX ID NUMBER?
 
 ?7  In addition, the IRA custodian will set up actual spending accounts for the beneficiaries if they do not already have appropriate accounts with this custodian. These accounts may have any title that is convenient for example “Son A Spending” account. This account will use Son A’s Social Security number as a tax number?
 
 ?8 over the next 10 years after the death of owner all the funds from the retitle “Owner’s IRA FBO son A under trust” account must be withdrawn from the retitle accounts and deposited INTO THE “Son A Accumulating Trust” account? Any withdrawals/deposits from a traditional IRA account are taxable events?
 
 ?9 Per the terms of the trust, the trustee transfers funds from the Accumulating trust to the Son’s spending account. At year-end these transfers will be reported on a K-1 tax form from the trust to the son, thus making the son liable for any income tax on the amount transferred to his spending account. The accumulating trust will be responsible for any income tax on the amount not distributed to the son?

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