Trust as IRA beneficairy
A client made his trust the beneficiary of his IRAs as he did not have any relatives. Is there a way to keep the IRAs intact and not have to liquidate them all at once and do it over 5 years?
A client made his trust the beneficiary of his IRAs as he did not have any relatives. Is there a way to keep the IRAs intact and not have to liquidate them all at once and do it over 5 years?
Permalink Submitted by Alan - IRA critic on Fri, 2025-02-07 10:08
Who are the trust beneficiaries, and did client pass prior to RBD?
Permalink Submitted by Steve Hoover on Fri, 2025-02-07 10:32
The client was taking RMDs. The trust beneficiaries are friends of his.
Permalink Submitted by Alan - IRA critic on Fri, 2025-02-07 11:42
Assuming that the trust is qualified for look through, the annual RMDs to the trust are based on the longer of the remaining LE of the oldest trust beneficiary, or the remaining LE of the decedent (eg. if the decedent was younger than the oldest trust beneficiary).
There is no option to elect the 5 year rule when decedent passed after RBD. And even if the trust was not qualified, the RMDs would be based on the remaining LE of the decedent.
While it would not change the RMD divisor, if the trust is allowed to terminate, it may be possible for the trustee to assign the IRAs out of the trust as individual inherited IRAs for each trust beneficiary.
Permalink Submitted by Steve Hoover on Fri, 2025-02-07 15:53
So does the 10 year rule apply? The beneficiaries are younger than the decedent.
Permalink Submitted by Alan - IRA critic on Fri, 2025-02-07 16:01
Yes, I should have clarified that. If the trust is qualified, it is subject to annual RMDs in years 1-9 and must be drained in year 10.