Do custodians that administer your IRA account have to report what your RMDs are to you (in this case a Trust) or the IRS?
My father’s Trust was the sole inherited IRA Beneficiary. I read a Kiplinger article on the internet that said “custodians that administer your account have to report what your RMDs are”. Do they do this for a Trust? Do they report the RMDs tthe IRS? The Trust has 4 Beneficiaries who are all different ages. Charles Schwab is the custodian never asked for the Trust document and they don’t know the ages of the beneficiaries so I don’t know how they would calculate the RMDs.
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-26 10:36
On what date was the IRA retitled with the trust as beneficiary?
If father passed after his RBD and none of the trust beneficiaries are disabled or minor children of father, the annual RMD for the trust will be based on the age of the oldest trust beneficiary and be due for years 1-9. In year 10 the entire remaining balance in the IRA must be distributed to the trust. This assumes that the trust is qualified for look through per the requirements in Pub 590B. Most trusts are.
But if it is not qualified, the annual RMDs are calculated on father’s remaining single life expectancy. The divisor would be 1.0 less than the single life table divisor for father in 2024, the year of death. Based on recent changes, it is now up to the trustee of the trust to determine if the trust is qualified, as custodians are no longer required to do so, most likely due to the complexity of the trust RMD rules.
You could ask Schwab to calculate the RMD, and they may or may not attempt to comply for a trust, but they would need answers to several questions. The info on the 5498 to the IRS will probably be limited to the prior year end balance with Box 11 checked that there is an RMD.
Permalink Submitted by Trust812 on Wed, 2025-02-26 12:33
My late father was 93 years old (birthdate 8/12/1931) when he passed away and he had been taking RMDs since he turned 70 years old. My father’s Trust lawyer established a Revocable Trust in January 2010 with the Trust as a 100% IRA Beneficiary. Upon his passing on September 14, 2024 of course it became an Irrevocable Trust. I am the Trustee. There are 4 Beneficiaries with equal 25% shares:
1) me (age 68)
2) my sister-in-law (age 65 representing my late brother’s estate)
3) my sister (age 67) who is a spendthrift and can’t handle money so my late father doesn’t want her to get her portion all at once. Guess who manages it? Lucky me!
4) my late father’s non-spouse partner (age 89, birthdate 12/27/1935) who is in a an assisted living facility. Guess who manages her portion and pays for assisted living? Lucky me again! 😂
When my father passed away my father’s Estate lawyer established 2 Sub Trusts, one for my sister and one for my father’s partner. Because of the Sub Trusts Schwab split the Inherited IRA into separate 25% Inherited IRAs for each of them. The lawyer didn’t establish Sub Trusts for my sister-in-law and myself so 50% of the Inherited IRA is lumped together for both of us as an inherited IRA under the main Trust. So basically there are 3 Inherited IRAs under the Trust, 50% in the main Trust for the benefit of my sister-in-law and myself, and two 25% Sub Trust Inherited IRAs. When I worked with the Estate Specialist at Schwab initially she had 100% of the inherited IRA go to the main Trust but then she transferred 25% each to the 2 Sub Trusts leaving 50%. Before she did this I took the 2024 RMD for my father’s IRA which he didn’t take before he passed away. There was only a 1099-R issued by Schwab for this distribution from the main Trust but none for the 2 Sub Trusts. I am not quite sure why the Trust lawyer didn’t have my father name my sister-in-law and myself as 25% Beneficiaries on the Schwab Beneficiary form in the first place since we aren’t special situations. When I asked the Trust lawyer why he didn’t do it his answer was vague and he thought under the Trust would have more control. As an aside, I also had my father’s Trust lawyer do my own Trust and he wanted me to also have the Trust as a 100% Beneficiary for my 2 children. Initially I did what be said but after dealing with the complications with my father’s Trust I changed the Beneficiaries on my own IRA to 50% for each of my children rather than going 100% to my Trust. I don’t know…maybe this Trust lawyer my father and I used isn’t that great of a Estate lawyer and up on the tax laws but a lot of retirees where I live use him. I never got an answer why he didn’t split my father’s Trust into 4 separate Sub Trusts rather than 2. Anyway, because my father’s partner is the oldest at age 89 I calculated the RMDs based upon her age and the Inherited IRA has to be emptied within 5.7 years. If it had been based upon my age I could have taken the full 10 years. Getting back to my original question I guess what I read in the Kipplinger article doesn’t apply to Trusts since they are complicated and the RMDs are only calculated for individuals! It’s no big deal because I have an RMD calculator and that’s how I got 5.7 years to empty the Inherited IRA based on my father’s partner’s birthdate of 12/27/1935. Any comments on all of this would be appreciated. One question I do have is if it the RMD is based upon 5.7 years can the RMD be met by taking it out of the main Trust IRA as long as it’s based upon the sum total of the 3 Inherited IRAs?
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-26 15:07
You and sister in law would have been better off to have inherited your shares as direct IRA beneficiaries, as you would then been able to spread the RMDs over 10 years instead of 6 years, and of course those inherited IRAs could be self -managed.
The Secure Act Regs released last year also provided that if the trust provisions provided for immediate separation into separate sub trusts for each (every) trust beneficiary (with the initial trust terminated), the separate account rules for RMDs could be used by each sub trust. But this Reg issued by the IRS is very recent and probably occurred after the initial trust was drafted.
Thus, the Secure Act reduced your stretch period from 20 years to 10, and the oldest trust beneficiary reduced that 10 to 6 years. 5.7 is the correct divisor for 2025, then reduced by 1.0 for each year thereafter.
Since there are now 3 inherited IRAs, one for each trust, it will be simpler to distribute the RMDs accordingly from each of the 3 but am not sure this is a requirement. You might check with the 1041 preparer.
Permalink Submitted by Trust812 on Wed, 2025-02-26 23:41
“You and sister in law would have been better off to have inherited your shares as direct IRA beneficiaries, as you would then been able to spread the RMDs over 10 years instead of 6 years, and of course those inherited IRAs could be self -managed.”
I know! That’s why even though I used my father’s Trust/Estate lawyer for my Trust and I initially had the Trust as 100% Beneficiary on my IRA for my 2 children, based upon my (and my father’s) lawyer’s advice I changed the beneficiary to go directly to my 2 children, 50% each. I did this even before my father died and when he died just reinforced I did the right thing regardless what my/our lawyer said! In my children’s case it really would not have made a difference because they are 2 years apart. It just seems cleaner this way! I live in a 55 year and older people community and a ton of people use this lawyer. A lot of his advice is good but not regarding this. In the scheme of things for me it is not going to make a big difference taking the money out in 5.7 years rather than 10 years because in 5.7 years I have to start taking RMD’s from my own IRA which would throw me into a higher taxe bracket and mean more taxes then. So I am not going to lose sleep over it. Also, I look at draining it sooner as kind of like a Roth IRA because most of the money will be invested in stocks like Amazon which don’t pay a dividend so it can grow tax free outside the IRA until I decide to sell the stock and pay the gains. I am not sure if I am explaining this right but to me I think it makes sense.
“The Secure Act Regs released last year also provided that if the trust provisions provided for immediate separation into separate sub trusts for each (every) trust beneficiary (with the initial trust terminated), the separate account rules for RMDs could be used by each sub trust. But this Reg issued by the IRS is very recent and probably occurred after the initial trust was drafted.”
That’s true! The way the lawyer did it the main Trust was not terminated and still has the Inherited IRA for my sister-in-law and me (total of 50%) even though the Inherited IRA was split off into two 25% Sub Trust Inherited IRAs for my sister and my father’s partner.