Living Trust as IRA Beneficiary
A new client recently passed away at the age of 67 and she listed her Living Trust as the beneficiary of her IRA because she wanted a trustee to control the money for her two irresponsible adult children. The IRA is at Schwab. The Living Trust now becomes irrevocable and an EIN will be created.
How will the splitting of the IRA and the retitling work since the two kids are the beneficiaries of the trust? I assume two Inherited IRAs will be created and both titled to the now established irrevocable trust but one will be for the benefit of one child and one for the benefit of the other child? Thank you!!
Permalink Submitted by Alan - IRA critic on Thu, 2025-04-10 19:32
Why split the IRA?
Seems like that would complicate the job of the trustee from an accounting standpoint. On the other hand, if the trustee has the discretion to distribute a portion of the IRA out of the trust to a beneficiary who at some point has proven to be responsible, then a separate inherited IRA would be needed for that beneficiary.
Permalink Submitted by Jonathan Sard on Fri, 2025-04-11 12:20
Thanks as always. The trust stipulates that each child will receive 6k per quarter until they reach age 35, and since the kids are different ages, will have different income needs, and are 50/50 beneficiaries of the trust, I assumed the best way to manage the disbursements would be to set up two separate Inherited IRAs for each child. I would have thought the accounting would be more challenging to NOT split the trust. Do you agree?
If this makes sense, how would we title the Inherited IRAs? Lastly, when making disbursements from the Inherited IRA to the beneficiary, should the money flow from the Inherited IRA to an Irrevocable Trust bank account and then sent directly to each child in case the trustee decides not to disburse all the funds to the kids in year 10 when the account needs to be emptied?
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-15 11:42
If the trustee of the trust prefers separate inherited IRAs, another beneficiary IRA could be established in the name of the trust and a direct transfer of 50% of the current IRA balance could be transferred to the new IRA as long as the IRA custodian will cooperate.
The trust itself is not split, just the inherited IRA accounts.
Permalink Submitted by Jonathan Sard on Wed, 2025-04-16 17:11
If the Inherited IRA accounts do get split, is there a way to title each Inherited IRA in a way that demonstrates which account is for which child? I am still not sure how the trustee can track appropriate distributions from the trust if the Inherited IRAs are NOT split because each kid is a 50% beneficiary of the trust. Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2025-04-16 18:14
The beneficiary of each inherited IRA must be the trust showing the trust EIN, therefore all distributions from both must be paid to the trust and then passed through to the trust beneficiaries. The inherited IRAs could be invested differently, but once distributions are paid to the trust each beneficiary is entitled to 50% of the trust assets. That’s why splitting the IRA without splitting the trust does not make accounting any easier.
Whether the trust itself can be split after it became irrevocable is a question for the lawyer who drafted the trust. If the trust is intended to be split at death, that typically must have been spelled out in the trust document.