IRA Annuity beneficiary is a see-through trust
Hi – I would appreciate your help (definitive answer) as the advice I am getting varies.
- Mother passed away at 88 (past RMD date)
- Beneficiary is a see-through trust
- Beneficiaries of the trust are 2 daughters (neither one is an EDB)
Per IRS Retirement topics – Beneficiary
Death of the account holder occurred in 2020 or later
Non-spouse beneficiary options
Designated beneficiary (not an eligible designated beneficiary)
- Follow the 10-year rule
Beneficiary that is not an individual
- Follow the rules described above as if the account owner died before 2020 (because the SECURE Act changes only apply to beneficiaries who are individuals)
So which rule applies? Are we DB’s (because of see through trust) and follow a 10-year rule or “not an individual” because the trust is a beneficiary and follow
Death of the account holder occurred before 2020
Non-spouse beneficiary options
If the account holder’s death occurred after the required beginning date, the non-spouse beneficiary may:
- Take distributions based on the longer of their own life expectancy or the account owner’s remaining life expectancy.
(in other words can take distributions over our own life expectancies).
Your help is much appreciated!
Permalink Submitted by Alan - IRA critic on Wed, 2024-09-04 12:38
The 10 year rule applies to the see through (qualified) trust, and because mother passed after RBD, there are also annual life expectancy RMDs in years 1-9 of the 10 years. The annual RMDs are based on the oldest trust beneficiary.
Had the trust immediately split into separate trusts for each beneficiary, the new Regs would have allowed the annual RMDs in years 1-9 to be based on the oldest beneficiary of each trust.
Permalink Submitted by Masha Shoykhet on Wed, 2024-09-04 15:15
Thanks!
What qualifies as “immediate”, as we only received an IRA distribution from the annuity made out to the trust, of course, a month ago. Can we still split the trust into 2, one for each beneficiary? Interestingly, I would have expected that each trust would follow its beneficiary’s life expectancy with regard to RMD, rather than the oldest (my sister and I are 10 years apart).
Would the beneficiary IRA be trust-owned in either case? (1 IRA owned by original trust or 2 IRAs each owned by the split-up trusts?).
If it is the original trust that owns the IRA and we are under the 10-year rule, how are RMDs calculated for years 1-9. I understand you said it is based on oldest beneficiary’s life expectancy, but what’s the formula (or the table)?
Thank you very much for your expertise.
Permalink Submitted by Alan - IRA critic on Wed, 2024-09-04 16:52
The trust instrument would have to specify that it is to be split into sub trusts for each beneficiary immediately upon death of the IRA owner. If the trust does not so specify, the separate account rules cannot be applied. The trustee of the trust will have to adhere to the trust provisions, and if those provisions allow for the trust to be split, it can be done, but the oldest (countable) trust beneficiary’s age must still be used to calculate the annual RMDs made to the trust. The IRS single life table would be used using the age of the oldest trust beneficiary in the year following the year of death, and that divisor would then be reduced by 1.0 for each successive year.
Trusts would still be the IRA beneficiary unless the trust provisions allowed the trustee to terminate the trusts and assign the IRA to the trust beneficiaries. Of course, that option would probably defeat the purpose of leaving the IRA to a trust in the first place. And it would also not change the RMDs, which would have to continue as stated above.
If the 10 year rule applies, there is a good chance that annual RMDs in years 1-9 would not be far off from taking out a roughly equal amount each year of the 10 years, and that would spread the taxable income out which is generally beneficial.
Permalink Submitted by Masha Shoykhet on Wed, 2024-09-04 20:58
THANK YOU!