Family tRust beneficiary to IRA
Client is trustee of family Trust. Investment advisor is recommending my client open a inherited trust account and distribute IRA into it stating it would be a non taxable transaction. The statement used is, “we would need to open an inherited trust, set up the same way as the current retail trust account, only with an inherited trait”. after this new account is opened the advisor states that they would have 5 years to payout the balance of the inherited trust IRA balance. The trust beneficiaries are individuals. Does this all sound correct?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-16 18:26
No. Most trusts are qualified for look through, and if this one is so qualified, the 5 year rule would not apply. Nor would the 5 year rule apply if the IRA owner passed on or after their RBD. For a qualified trust with no disabled beneficiaries of the trust, the 10 year rule would apply, and it would no longer matter which beneficiary is the oldest. The trust must also have become irrevocable in order to be qualified. The trustee of the trust should open an inherited IRA at the current custodian with the title showing the name of the trust and the trustee of the trust as the beneficiary of (decedent name). The custodian would then directly transfer (not distribute) the IRA balance into the trust’s inherited IRA. Any other legal questions regarding the trust itself should be directed to the attorney who drafted it.