Testamentary Trust inherits IRA
Client, age 75, has a $900K Traditional IRA and named his Testamentary Trust FBO his daughter who is on SSI. What are the rules for the Trust that inherits the IRA. The current IRA is invested in Mutual Funds. Can the Inherited IRA stay in the same funds?
Permalink Submitted by Alan - IRA critic on Thu, 2025-10-09 14:58
No reason why not, especially if the inherited IRA is maintained with the same custodian. Investments can also be changed in the inherited IRA anytime with no current tax implications.
However, the 10 year rule will apply to the trust, so the inherited IRA can only last 10 years after his death, and for a traditional IRA in order to avoid a huge tax spike in year 10, approximate equal annual distributions should be taken out of the IRA each year. Those taxes would be due at the higher trust rates if the terms of the trust call for accumulation of the IRA distributions in the trust, but for amounts distributed out of the trust annually to the daughter the taxes would be paid by the daughter at her lower tax rates. That said, if distributions are made to the daughter they could eliminate eligibility for SSI and other govt benefits.