Trust Beneficiary Conundrum

Submitted by Tim Kuntz on Thu, 2022-12-08 18:55

In 2016, wife passes away (age 73) and had revocable family trust listed as beneficiary of her IRA.
Husband (age 78 in 2016) keeps the beneficiary IRA registered under the trust and begins taking distributions every year. Note – we have limited information on actions taken with this account.

Husband passed away in 2022 (age 84). Bene IRA is still registered under the trust. He was actively taking RMDs every year. We believe the trust qualifies as a look-through trust. His two sons (in their 50s) are the only beneficiaries of the trust.

Custodian is asserting that the beneficiary IRA MUST be fully liquidated and sent to individual accounts for the sons (still unclear on where 1099s will be sent – either to the estate, trust, or beneficiaries). We’ve received several different answers from different resources on whether or not this is accurate. Any assistance is very much appreciated. We’re at our wit’s end!

Thank You,
TK



Submitted by Alan - IRA critic on Fri, 2022-12-09 02:12

  • From an RMD standpoint, it appears not to matter whether the trust was qualified or not since RMDs based on the decedent’s LE (being younger than the oldest trust beneficiary) should apply and continue to apply. Even if the trust provisions indicate that it should be terminated following husband’s death and inherited IRAs should be assigned out of the trust to the 2 sons, the RMD schedule would not change other than the 10 year rule would require that the inherited IRA be drained by 12/31/2032, which is approximately the same year that the RMD divisor would dictate full distribution. 
  • It’s not clear what the custodian is stating. Regardless of whether the trust must be terminated, the inherited IRAs should be allowed to remain until the Secure Act regulations draw them down to 0. That would be in 2032 unless the annual RMD divisors based on the decedent’s age drain the inherited IRA a year earlier. The custodian should be asked for their logic that the IRA be drained now, since there is no IRS Reg that requires this. 
  • Decedent’s RMD divisor also needs to be reset for the new 2022 RMD tables, which roughly add another year to the RMD schedule. 
  • If the custodian’s logic is based on the 5 year rule, that is incorrect as the 5 year rule only applies if the IRA owner passed prior to their RBD (and they did not) AND the trust was NQ. If they say that the trust is NQ, the RMD distribution period is still based on the LE of the decedent, and continues to be after husband’s passing.


Add new comment

Log in or register to post comments