Spouse as EDB via qualified trust

Submitted by Robert Vashko on Mon, 2023-03-20 12:09

Just fact-checking myself here.

IRA Owner dies at age 73 (after RBD). Leaves IRA to proper qualified trust, with Surviving Spouse (age 68) as primary bene of the trust.

Trust cannot delay EDB stretch payments (i.e., until SS hits RBD), correct? Since SS can’t assume, and must remain in bene status, the only way RMDs could be delayed is until the owner would have hit RBD, which he already did. Is that correct?

And if so, could the stretch RMDs have been delayed even if the owne rhad died before RBD? In other words, does this “delay of stretch RMD” spousal benefit extend to a see-through trust where the SS is primary beneficiary? Or is that only available when SS is direct bene of the IRA?

Just wanted to make sure I was not overlooking anything under the new rules/regs.

Please and thank you.



Submitted by Alan - IRA critic on Mon, 2023-03-20 19:37

Since the owner passed post RBD, the beneficiary RMDs cannot be delayed. If they had passed prior to RBD and the trust was a conduit trust, the RMD could be delayed until the year the owner would have reached RMD age. In this example, is the trust a conduit qualified trust or an accumulation qualified trust? And if accumulation, who are the contingent/successor beneficiaries of the spouse?

Submitted by Robert Vashko on Mon, 2023-03-20 21:10

Trust is set up in a second-marriage situation, whereby SS is the second spouse, and trust’a residual beneficiaries are the kids from the owner’s first marriage. So, conduit for SS, with residual balance paid out to kids upon SS’s death   I did not think younger SS – who is unable to assume – had the ability to delay stretch RMDs in this case sincd owner died post-RBD, but honestly, all of these spousal bene changes in the regs have me on unsure footing nowadays.   But then based on your response, it sounds like the qualified trust *could* have delayed RMDs  for a few years if the owner had died at, say, 68.In other words, this spousal perk of taking as a bene but delaying RMDs until the owner would have hit RBD *does* “carry through” to a qualified conduit trust?

Submitted by Alan - IRA critic on Mon, 2023-03-20 21:59

  • Yes.  As described, this appears to be a qualified conduit trust that would allow the SS to be treated as an EDB which could have delayed RMD had the participant passed prior to RBD, but only until participant would have reached RMD age. But since participant passed post RBD, the beneficiary RMDs to the trust must begin in the year after death.
  • If the trust provisions allow, or allow the trustee the discretion to assign the IRA out of the trust to the SS, many custodians would allow the trustee to assign the IRA to an owned IRA of the SS, ie spousal rollover. However, other custodians would insist on a PLR, maybe more so since Secure, but Secure does not appear to have affected the ability of a trustee to make such assignments if the trust provisions allow it.  Lower uniform tables would reduce SS RMDs compared to single life table divisors, and assignment could also result in later RMDs if the SS was not yet RMD age. 
  • However, the owner may have had a good reason to leave the IRA to a trust instead of SS outright.

Submitted by Robert Vashko on Mon, 2023-03-20 22:02

Risk of disinheritance of kids from prior marriage. Was not aware that spousal perk of delaying stretch RMDs carried through to the qualified conduit trust like that.  Thank you!

Submitted by Mike Janky on Tue, 2023-03-28 16:55

regarding your comments on the trustee who is the SS to assign the IRA out of the trust, does the custodian who currently has the deceased IRA account need to send the money directly to the new IRA or can the money be paid out to the trust and then the trustee(SS) send on to the new custodian as a spousal rollover? Thank you

Submitted by Alan - IRA critic on Tue, 2023-03-28 18:28

It would be better to request assignment to an inherited IRA at the current custodian. Spouse could then elect to assume ownership of that inherited IRA without a distribution. Conversely, a distribution made to the trust will generate a 1099R to the trust TIN which would require the trust to report the income on the 1041, and then to distribute the funds through to the spouse on a K1. Then within 60 days from receipt of the distribution into the trust the spouse would have to convince an IRA custodian to accept the rollover contribution. That custodian may or may not accept it or could require a PLR. Also, the TIN on the 1099R would not match the 5498, which would be under spouse’s SSN. It seems more likely that an IRA custodian would accept assignment out of the trust than a spousal rollover from a trust, but alot of this hinges on the policies of the current IRA custodian. If they are cooperative, it would be best to execute these transactions as non reportable transfers as far a possible with the current custodian. If that custodian will not cooperate with any of this, then the choice is to transfer the inherited IRA in the name of the trust to another custodian that will, perhaps where the spouse already has accounts. There is time to do this since there has no been distribution made. Having a distribution made to the trust is a possibility, but much more can go wrong.

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