Trust as IRA Beneficiary

I was recently looking at a Trust written in the 1990s so some of the language is a bit unusual. However, a large ($2M) IRA was left to the Trust. The Trust permits the Trustee to distribute the IRA however they see fit amongst the 4 beneficiaries. 3 Beneficiaries are in a high tax bracket and one is in a very low tax bracket. So from a tax perspective we would want the entire $2M to go to the one beneficiary, you will then take the money out over the allowed time period and pay the taxes and gift the net amount to the other 3 siblings (estate taxes aren’t an issue for this person as they have less than $1M of an estate while the other beneficiaries have $5M+ estates). However, I am struggling to decide if the 10-year rule or 5-year rule would apply here for distributing this IRA. The decedent died 2 years ago and nothing material has been distributed from the IRA as of yet. So now we have 8 or 3 years left depending on which would apply. It appears to be a “look through” trust, but again, it’s written in the 1990’s. How can I confidently determine which rule applies?? 5-year or 10-year? The estate attorney says to check with the CPA and I am the CPA haha. Thank you!



  • The IRA custodian should have determined if the trust was qualified for look through or not by 10/31/2023 if the IRA owner passed in 2022. Then, if the IRA owner passed after their RBD, annual beneficiary RMDs would be required based on the age of the oldest countable trust beneficiary in years 1-9. If the trust failed qualification, the IRA would have to be distributed based on the single LE of the decedent.
  • If trust was not qualified and decedent passed prior to RBD, the 5 year rule would apply. If trust was qualified the 10 year rule would apply with no annual RMDs.
  • The trustee of the trust would also have to hope that the IRA custodian will cooperate with an assignment request of the IRA out of the trust to the trust beneficiary, which beneficiary will no longer be in a low bracket and will have to file gift tax returns.

 

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