Qualified trusts – Sept. 30th vs. Oct. 31st

Submitted by Robert Vashko on Mon, 2023-05-22 13:08

Suppose IRA owner leaves the account to a qualified conduit trust where both trust beneficiaries are minor children of the decedent.

Now suppose there is a, say, five-year spread in age between the kids, and trustee would like to segregate the account into two equal halves, so one kid can start their 10-year window 5 years later than their older sibling.

Must this segregation happen by Sept. 30th of year after year or death, or must it happen by Oct. 31st?

If we are treating the trust as a designated beneficiary, we have to identify such benes by 9/30, correct? But the trustee is able to submit beneficiary information to the custodian as late as 10/31.

The safe answer is to just do it by 9/30 to cover your bases, but is that really when this *has* to be done?



Submitted by Alan - IRA critic on Mon, 2023-05-22 17:37

  • A single qualified conduit trust in this case would have to use the age of the oldest child to determine EDB RMDs since the separate account rules do not apply to trusts. Similarly, since 2002 even if the trust provisions allowed the trust to be split into two subtrusts post death, this would not affect the RMD calculation for the trust. When the oldest child reaches 21, the 10 year rule will kick in but annual RMDs would cease if the IRA owner passed prior to RBD, the most likely scenario when children inherit under 21. While the 5 year EDB RMD difference matters little at this age, the loss of EDB treatment for the younger minor beneficiary when the older reaches 21 is more serious since the entire IRA would have to be distributed by the time the older beneficiary reaches 31 and the younger reaches 26. The only solution to this is separate trusts for each child created before the DOD or testamentary trusts created under the will. 
  • The above issue seems to eliminate your main question. That said, there could still be solutions that the trustee could apply by the 9/30 date. 10/31 is merely the deadline for submitting final trust documentation to the IRA custodian. The following is quoted from a Natalie Choate article:
  • “Existing regulations make no distinction, with respect to changes in the identity of the beneficiaries, between beneficiaries designated on the beneficiary designation form and beneficiaries of a trust that is named as beneficiary on the beneficiary designation form. The Proposed Regulations, in contrast, provide extremely liberal rules for changing the identity of the countable beneficiaries under a trust that is named as the participant’s beneficiary. Under the proposed regulations, beneficiaries can be not just REMOVED from the trust but also ADDED to the trust between the date of death and the BFD; and the means of removing a beneficiaryare not restricted to qualified disclaimer or full distribution: Exercise of a power of appointment, decanting, or reformation will be similarly effective. “

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