IRA Distribution currently has a trust as bene

Submitted by Geoffrey Kasher on Wed, 2023-02-22 22:04

The rev trust names the 2 adult children as 25% bene’s each. The minor grandchildren are the bene’s of the remaining 50%.

I’m not sure this is the most efficient.

On a Bene Designation form, I know the adult children can be listed at 25% each.

If the minor grandchildren are individually listed as bene’s how would this be handled at the IRA owners passing?

Would the trustee, who are the adult children, have to open Inherited IRAs for the children as custodial accounts?

Is there a better way?

Permalink Submitted by Alan - IRA critic on Wed, 2023-02-22 23:38

You are correct to question this. If the trust is intended to shield the beneficiaries from creditor claims including from spouses or prevent irresponsible spending, the distributions would just be made to the trust and taxes paid at the higher trust rates. The trust beneficiaries would not have separate inherited IRAs. If the trust provisions allow the trustee to distribute the IRA out of the trust to the beneficiaries, why name a trust as the beneficiary at all?
Money is fungible. If the adults are responsible why not leave 50-50 to the adults directly, who can then use the RMDs or other distributions under the 10 year rule to help their children. No funds would go directly to the children unless the parents determined it was beneficial, and then would be provided by the parents.
Post Secure Act, the grandchildren would not have a longer stretch as before. They would have to drain their share in 10 years just like the adults.
Exceptions apply if any beneficiaries are disabled or special needs beneficiaries, as the 10 year rule would not apply to them or to trusts for their benefit.