Conduit Trust with multiple natural beneficiaries as beneficiary of IRA
A decedent named his Revocable Trust as beneficiary of his IRA. The Trust has 15 natural beneficiaries. After opening an Inherited IRA in the name of the Revocable Trust, can the Trust distribute the IRA funds to the 15 individual beneficiaries of the Trust into inherited IRAs established by the Trust beneficiaries? How else can the family distribute the funds over ten years without creating annual fiduciary income tax filings for the trust.
Permalink Submitted by Alan - IRA critic on Wed, 2025-07-23 21:52
If the trust provisions allow the trustee to distribute the inherited IRA out of the trust, the trustee can provide instructions to the IRA custodian to assign each beneficiary’s share out of the trust to separate inherited IRAs for each beneficiary.
However, given that the custodian would then have to deal with 15 different inherited IRAs, they may be reluctant to cooperate with that request, since inherited IRAs are wasting assets and not attractive to the IRA custodian. I don’t know if custodians all have blanket policies to deny or accept such requests, but if there is any discretion involved the custodian will view 15 accounts as unattractive.
Should the custodian accept such a request, it does not affect the RMDs in any manner, it just gives each beneficiary an inherited IRA to self manage. RMD rules depend on whether the IRA owner passed prior to RBD or after or whether the trust is qualified for look through. If qualified (and most are), the 10 year rule will apply to all the inherited IRAs, with annual RMDs based on the oldest trust beneficiary if decedent passed post RBD.
Acceptance of assignment is the only way the trust will avoid annual 1041 filings unless there is no annual income to the trust. But if no annual income that will leave a large total distribution in year 10 and a large tax bill.