Separate Accounting and Minor Beneficiaries
If I am reading 1.409(a)(9)–8 correctly, you can’t divide a see-through trust into separate accounts for each beneficiary, so that the RMD is determined separately for each, if _any_ of the current beneficiaries as of the death of the employee is a minor (or if the trust has a clause restricting distribution to one of the current beneficiaries until say age 25), because the interest would have to be held in trust for such a beneficiary, and therefore the trust can’t terminate immediately upon the death of the employee.
Is that correct?
Presumably, one could still divide the IRA for administrative convenience, but the RMDs for all of them would be based on the age of the oldest beneficiary.
Permalink Submitted by Alan - IRA critic on Tue, 2025-01-07 17:47
The final Regs allow a qualified trust that is required to be divided immediately into sub trusts for each trust beneficiary (and the main trust terminates) to use the separate account rules for each sub trust. I don’t see any reason that this rule would not apply if a sub trust was for a minor, as the sub trust would continue, the minor of the plan owner would be an EDB, and the 10 year rule would not kick in for that sub trust until the minor reached 21. The other beneficiary sub trusts would be subject to the 10 year rule right away.
Permalink Submitted by Iver Cooper on Tue, 2025-01-07 19:31
I see … the key is that the trust agreement needs to say 1) that the trustee shall, immediately upon the death of the employee, divide the IRA account and distribute each beneficiary’s share thereof into a separate sub trust for that beneficiary and 2) that the main trust is then terminated with respect to the IRA account. It can’t just say that it is creating a separate account within the trust.
If I am mistaken, let me know.
What if the trust receives an IRA not directly from the employee, but rather from the employee’s spouse, who was the employee’s primary beneficiary under the IRA. The spouse could assume the IRA, or take the IRA as beneficiary, and either way name the Trust as beneficiary before the spouse died. Does the spouse then stand “as the employee” for purpose of 1.409(a)(9)–8? Or is the separate treatment not available?
Permalink Submitted by Alan - IRA critic on Tue, 2025-01-07 22:14
Your first summary is correct.
As for a surviving spouse beneficiary naming a trust as their successor beneficiary, the trust would not be qualified for look through because the trust is only a successor beneficiary and neither the trust nor its beneficiaries would have any effect on RMDs, as the RMD schedule for the surviving spouse would have to be maintained. That said, if the surviving spouse elects to assume ownership of the inherited IRA and names a trust as beneficiary, that problem would be eliminated since that spouse would then be treated as the employee.