Son is beneficiary of IRA but was put in trust til age 30-Pre Secure Act

Submitted by Linda Ward on Wed, 2022-08-31 17:16

Father passed away in December 2017 at age 69. His son was beneficiary of his IRA, however he was younger so father had IRA put in a trust at his passing until son was 30. We’re having trouble finding out what happens when son turns 30 next year. There have been distributions from the IRA into an investment account within the trust so the trust has been paying the tax. In 2022 the son is receiving distributions which is allowed under the trust agreement.
My questions:
– Will this be considered Distributable Income – then son pays the tax in 2022
– When he turns 30, IRA becomes the son’s and trust is ended. Can he use the stretch rules since Dad died Pre Secure Act?



Submitted by Alan - IRA critic on Wed, 2022-08-31 19:25

  • So, the trust was the named beneficiary on the IRA agreement, not the son?  If so, the trust’s qualification for the stretch would have been determined in 2018. If the trust was qualified, RMDs would have been based on the oldest trust beneficiary that was not clearly a successor beneficiary, therefore the age of the son. If the trust was not determined to be qualified in 2018, then the entire IRA falls under the 5 year rule, and due to the 2020 RMD waiver would have to be distributed by 12/31/2023.
  • Distributions out of the trust to son would be taxed to the son, unless such distributions were first accumulated in the trust and the trust reported the income in the year distributed.
  • If the trust was determined to be qualified, the RMDs from the IRA would continue to be based on son’s LE, and the trustee of the trust could assign (with a cooperative IRA custodian) the inherited IRA out of the trust to the son who would then have control of his own inherited IRA with annual RMD requirements. 

Submitted by Linda Ward on Thu, 2022-09-01 12:44

No, thats the wierd thing. the actual IRA beneficiary designation was the son. UBS sent me the paperwork. But apparently the will said the dad didn’t want son to get it before he turned 30. He was about 24 when dad died. 

Submitted by William Tuttle on Thu, 2022-09-01 13:33

  • An individual IRA beneficiary is not part of an estate.
  • A will only controls estate assets. The trust should have never applied.
  • The son should have had full control of the Inherited IRA.

Submitted by Linda Ward on Thu, 2022-09-01 14:35

So sorry, I’ve never run into this before, but after you mentioned that I went back to the original IRA form. It says: Primary Beneficiary: My son, xx, provided however that if my son, is under 30 years of age, then my IRA shall be given in Trust to my Trustee, xx for the benefit of my son, as specified under Article…of my Last Will…   So does that make the trust the beneficiary? 

Submitted by Linda Ward on Thu, 2022-09-01 16:21

If the trust was a qualified trust, it would be stated as such in the trust document, wouldn’t it? There is nothing stated to that effect. Do you recommend I have an attorney look at the document? I have tried reaching out to the attorney I believe drafted this, but he hasn’t responded. All this took place before our firm got involved.

Submitted by Alan - IRA critic on Thu, 2022-09-01 17:03

  • The beneficiary designation on the IRA agreement would generally make the trust the beneficiary if the IRA owner passed prior to the son reaching 30. This can be confirmed by checking any of the IRA 1099R forms reporting distributions in recent years. If they were paid to the trust the 1099R should contain the EIN of the trust. Apparently, this has been the case.
  • My first post applies here. The IRA custodian should be able to confirm if the trust was qualified for look through since they should have received a copy of the relevant provisions of the trust. The trust itself will not state whether it is qualified, it just needs to contain key provisions required by the IRS. Most trusts meet these requirements, but the trustee of the trust must submit the trust provisions to the custodian no later than 10/31/2018 in this case. The IRA custodian and the trustee of the trust are the only ones that would know if this was done. I would simply ask the IRA custodian at this point.
  • Whether the trust is qualified or not, upon the son reaching 30, the trustee of the trust should assign the IRA out of the trust to an inherited IRA for the son, who would then continue to distribute the RMD based on his life expectancy. The divisors will be reduced by 1.0 each year, but for 2022 the divisor must be reset to reflect the new 2022 RMD tables. Of course, the son will be free to withdraw more than the RMD if he wishes. If the trust was NOT qualified, then the IRA must be drained by 12/31/2023.

Submitted by Linda Ward on Thu, 2022-09-01 18:45

Thank you very much. That makes sense. I appreciate your willingness to share this information.

Submitted by William Tuttle on Fri, 2022-09-02 00:51

That is certainly an unusual IRA beneficiary designation. Most custodians want a simple individual or trust designation. However, if the custodian accepted and exececuted such a beneficiary designation. In these circumstances it would be treated the same as any trust designation subject to the issues raised by Alan.

Submitted by Linda Ward on Fri, 2022-09-02 12:47

Thanks for confirming Alan’s response! I greatly appreciate it. It is unusual, and I find it unusual that UBS does not seem to know how to handle it! 

Submitted by Bruce Steiner on Sun, 2022-09-04 14:36

  • Spritirider:  that’s not at all unusual.  Our beneficiary designations are almost always like that, except we don’t have an age contingency.  We don’t mandate that trusts end at a specified age.  Instead, in most cases, the beneficiary gains control over his/her trust upon reaching a specified age. may remove and replace his/her co-trustee (provided the replacement trustee isn’t a close relative or subordinate employee), and will have a broad power of appointment.
  • The “provided, however” makes sure that if there’s no Will, or if the Will doesn’t contain such a trust, there will be a backup provision (to the beneficiary outright).
  • The original poster may want to check to see if the trust can be decanted in such a manner before it’s forced to terminate.
  • Bruce Steiner

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