TRUST LISTED AS BENEFICIARY ON AN IRA

Submitted by Rene Nourse on Thu, 2023-06-15 19:28

A CLIENT RECENTLY PASSED AND DIDN’T TAKE HER 2023 RMD. THE TRUST IS LISTED AS BENEFICIARY. HOW WILL THE RMD NEED TO BE DISTRIBUTED? AND DOES THE IRA HAVE TO BE ROLLED OVER INTO THE TRUST IMMEDIATELY OR OVER HOW MANY YEARS- 5 OR 10 YEARS?



Submitted by Alan - IRA critic on Fri, 2023-06-16 02:34

The trustee of the trust will have to have the IRA retitled with the trust as beneficiary of the owner. The 2023 year of death RMD can then be distributed to the trust and passed through to the trust beneficiaries if the trust provisions permit. If the trust is qualified for look through annual RMDs must be distributed in years 1-9 of the 10 year rule based on the age of the oldest trust beneficiary. If not qualified, RMDs are based on the “ghost life expectancy” of the deceased owner with no 10 year rule. There are also other possibilities, for example if the trust is for the benefit of a disabled beneficiary. Note that the IRA balance can only be moved by direct transfer to the beneficiary IRA. No 60 day rollovers are permitted.

Submitted by Rene Nourse on Fri, 2023-06-16 17:38

So- in this case, there is only one person listed as the trustee beneficiary- her son. Once the Beneficiary Trust IRA is established, can all of the assets be moved into this own beneficiary IRA and upon doing so, can the Beneficiary Trust IRA be closed out? And,  of course he would be subject to the 10-year distribution rule.

Submitted by Alan - IRA critic on Fri, 2023-06-16 21:45

The provisions of the trust determine if the trustee has the authority to distribute assets out of the trust. If so, the trustee can assign the inherited IRA out of the trust to an inherited IRA of the trust beneficiary. That would not change the RMD schedule indicated earlier.

Submitted by MIKE KRUCHTEN on Fri, 2023-06-16 23:54

In most posts on this forum regarding a Trust as bene of an IRA and ability to create separate Bene IRA’s for the trust bene’s (assume there are 4 human bene’s) and trust is deemed to be qualified certain language is commonly stated to be needed!!Also, would such split (4 separate Bene IRA’s) need to be completed by 9/30 of year after death or is such a split not time sensitive if Trust Bene IRA is opened before 9/30 of year after?Can someone elaborate or provide an excerpt of such language??? I have ran this question by numerous estate planning attorneys and all have different opinions. Maybe I’m thinking to hard and possibly a simple paragraph providing the trustee discretion to assign the inherited IRA out of the trust to an inherited IRA of the trust beneficiary is all that is needed??Would love to hear an opinion or see verbiage!!!! 

Submitted by Alan - IRA critic on Sat, 2023-06-17 16:20

  • Since trusts do not recognize the “separate account” rules available to non trust individual beneficiaries, the 12/31 deadline for such separate accounts does not apply. However, the 9/30 “beneficiary determination date” can still apply if a beneficiary of the trust disclaims or their interest is fully distributed from the IRA, In such a case their age would not be considered when determining the oldest beneficiary of the qualified trust. But the mere act of the trustee assigning the inherited IRA out of the trust to individual inherited IRAs (if the custodian cooperates) does not affect the RMD calculation for those beneficiaries. 
  • With respect to trust language required to meet the requirements of trust qualification, there is no specified IRS language for each of the requirements. First, the trust must be valid under state law, so each state varies in that respect. Irrevocability at death is the second requirement, and can be clearly stated. Third, clear identification of trust beneficiaries is required including remainder beneficiaries. The Secure Act proposed Reg outline specific examples of “countable” beneficiaries and those that can be ignored for determining the RMD schedule, but being non countable does not mean that the trust could not fail qualification status due to lack of clarity. Finally, the trustee of the trust must provide trust info as required or requested by the custodian by 10/31 (known as Halloween rule) of the following year, or the trust will not be qualified. In certain situation, the trustee may opt to NOT provide this info so that the trust is NQ. For example, if the decedent was just past RBD and under 80, this would provide a longer stretch than the 10 year rule even though annual beneficiary RMDs would be required.

Submitted by MIKE KRUCHTEN on Sat, 2023-06-17 18:54

Again, Thank You for the very clear explanation!! A follow up question. So if a Bene IRA is owned by decendants trust ( let’s assume death was in 2021 and Bene IRA opened same year before RMD start date). Trustee and bene’s (only 2 humans who are 40 and 42) of the Trust had no idea about see thru trust as an option in 2021(again, assumption is a qualified trust and language allows). Could the trustee still split the Bene IRA Trust to each bene if Custodian has no issue. Sounds like it’s possible via your response to this thread? I had thought this would have to be done by 12/31 after year of passing but since oldest bene DOB was used to determine 2022 and 2023 RMD would be nice to split the Bene IRA. They 2 bene’s have polar opposite risk tolerance.

Submitted by Alan - IRA critic on Sun, 2023-06-18 04:05

The trustee’s ability to assign the IRA out of the trust is unrelated to whether the trust is qualified or not. It just depends on the trust provisions allowing it. There is no deadline for doing so, and the RMD schedule is not affected. Assignment provides an independent inherited IRA to be managed by each beneficiary.

Add new comment

Log in or register to post comments