Trust as IRA Beneficiary

Submitted by Arek Puzia on Wed, 2021-07-07 05:00

Mom passes away in March 2021. She had the trust listed as the IRA beneficiary (for whatever reason advisor didn’t have her change to her 3 children). IRA custodian is Capital Group (American Funds). They are telling the 3 kids that they will each need to open up Inherited IRAs in their own names and since the 3 of them are the trust beneficiaries (it’s a “flow-through” trust) they can stretch based on the life of the oldest beneficiary. I thought the 10-year rule here would apply. Are they being told something incorrect, or am I missing something? When would you use the life of the oldest beneficiary in a situation like this? Thank you!



Submitted by Arek Puzia on Wed, 2021-07-07 06:23

I should add kids are all adults over 50 years old and mother was in her 80s.

Submitted by Alan - IRA critic on Wed, 2021-07-07 12:48

Unless one of the trust beneficiaries is chronically ill or disabled which would qualify the trust as a “multi beneficiary trust” as created by the Secure Act, the 10 year rule will apply to all beneficiaries. Further, the trustee of the trust must adhere to the trust provisions, particularly whether the trust can be terminated and the inherited IRA assigned out of trust to the individual trust beneficiaries. If so, then each beneficiary (with a cooperative IRA Custodian) will have their own individual inherited IRA, but this will not change the RMD distribution period from the 10 year rule. And in order to qualify for the 10 year rule, the trust must be qualified for look through, and part of that is providing the IRA custodian will all required trust information by the deadline of 10/31/2022. If this is not done, then the distribution period will revert to the remaining life expectancy of mother, which may not much different than the 10 years. Again, what American Funds is saying is no longer true unless unless a beneficiary is disabled.

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