Successor Minor Beneficiaries of Beneficiary IRA
Client passed away in 2011 at the age of 78. His GST trust was the IRA beneficiary with his 54 year old son beneficiary of the GST. Son was taking RMDs based on his own remaining life expectancy and was reducing by 1 each year. The son passed away last year and the successor beneficiaries of the GST trust is the son’s two daughters (the original IRA owner’s granddaughters). The two daughters were 16 and 14 when their father passed away last year so they are now 17 and 15.
My understanding is that the daughters will need to drain the IRA within 10 years of their father’s death (father was 56 when he died) because they are successor beneficiaries and will not be eligible to stretch RMDs even though they are minors. If that is correct, do they have to take RMDs starting this year due to the recent IRS guidance that RMDs must continue to come out since the original IRA was over 70 1/2 even though the original beneficiary died before 72, AND that the IRAs will still have to be emptied within 10 years of their FATHER’S year of death (2031)?? If they do need to take RMDs out every year for the next 9 years, which RMD schedule will be used? Will they use the remaining life expectancy that their father was using and continue to reduce by 1 each year?
This is a confusing situation and I really appreciate any guidance!
Permalink Submitted by Alan - IRA critic on Tue, 2022-07-19 22:35
Assuming that the proposed Secure Act Regs become final with respect to this issue, you are correct that the son’s daughters would have to take annual RMDs, which would be calculated using their father’s RMD schedule with 1.0 annual divisor reduction. The 2021 RMD of the son must be completed by his daughters if son did not complete it. The 2022 successor beneficiary RMD could be waived by the IRS even if the proposal becomes final but too late in 2022 for beneficiaries to act. Therefore, unless they want to take a 2022 RMD to spread the taxable income, I would not take it until the Regs are final. The concept of annual RMDs within the 10 year rule was a shock to many and major pension organizations have filed protests on that issue.
Permalink Submitted by Jonathan Sard on Tue, 2022-10-11 17:47
Now that the IRS announced there is no tax penalty for not taking RMDs in 2021 or 2022, do the successor beneficiaries still need to take RMDs each year based off the fact their father who was the original beneficiary died at the age of 56 and was taking RMDs using his single life expectancy and reducing by 1 each year? All facts are listed above in the original post. Thank you!!!!!!!!!
Permalink Submitted by Alan - IRA critic on Tue, 2022-10-11 20:43
This question also has no firm answer until the final Regs are approved, but as submitted they will have to take annual RMDs starting in 2023 because the original client owner passed after the RBD. It depends on whether the IRS backs off on this requirement. Their decision would likely apply to successor beneficiaries in a consistent manner with designated beneficiaries. If they back off the annual RMD for designated beneficiaries based on when the owner passed, they would probably do so for successor beneficiaries as well.