IRA left for Grandson with disability
Have client with approx. 600k in an IRA.
She made a trust for her grandson who has some disabilities. She does not want to list him as a beny but wants to leave the money to him in a trust.
questions:
- can you have a trust as the primary beneficiary on an IRA
- If she passes and the money goes to the trust is it all taxed or can it be listed as an inherited IRA under a trust.
- any other way to assist her under the IRS rules
Thank you for any assistance
Douglas
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-04 23:17
Yes, and depending on his degree of disability, it could be a special needs trust. The IRA distributions are only subject to tax when distributed, and the RMDs distributed to the trust will be very small, smaller the younger the beneficiary is when they or the trust inherits.
Permalink Submitted by Douglas Bauerband on Wed, 2025-03-05 09:43
Alan,
I’m sorry I missed the mark on this as it is actually the Will and not the Trust.
The client has a special needs trust listed in the Will so when she passes the trust would go into effect for her son.
Can you list a trust that is not effective yet as a beny on an IRA
would you list the Estate as primary beny but if it goes to the estate it will be taxed, correct?
any other way we could do this within the IRS rules so the IRA is not taxed?
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Wed, 2025-03-05 13:13
Yes, the trust must be listed on the IRA beneficiary form. For example, “testamentary trust created in my will”. Client should check with the IRA custodian to determine their preferred format. If the trust is not listed on the IRA beneficiary form, it will not be qualified for look through, and the 5 year rule would apply.
Conversely, if the trust is qualified for look through, the IRA can be stretched over the life expectancy of the trust beneficiary, if they are sufficiently disabled.
Distributions to the trust will be taxable. A qualified trust just permits those RMDs to be spread over more years, it does not affect taxation of the RMDs. Taxes will be due at the higher trust tax rates if the RMD income is accumulated in the trust, but at the disabled beneficiary’s lower personal tax rate if passed through the trust to the beneficiary.
Permalink Submitted by Douglas Bauerband on Fri, 2025-03-07 14:06
Alan,
I forgot to say Thank you very much and have a wonderful weekend.