Turst as IRA Beneficary
I wanted to confirm that a Revocable Trust as an IRA beneficiary for the deceased who has started RMDs in which the Trust does not pass the “Look Through rules” will follow the Ghost Rule and distribute the funds as RMDs to follow the payout schedule of the Deceased IRA owner.Is this correct?
Thank you for the clarification.
Denise Sowell
Permalink Submitted by Bruce Steiner on Thu, 2024-04-18 20:55
It may be, but (i) it would be unlikely that it wouldn’t qualify, but (ii) it usually wouldn’t make sense to leave an IRA to a revocable trust since a revocable trust is an administrative trust that winds up within a reasonable time after death. Unless you have contingencies that are not suitable for a beneficiary designation form, you could skip a step by leaving the IRA to or in trust for the beneficiaries of the revocable trust.
Revocable trusts make sense in some cases and in some states, but aren’t necessary in most cases in most states.
Permalink Submitted by Denise Sowell on Fri, 2024-04-19 12:41
I understand the purpose of the Revocable Trust, but the client’s attorney has already added the IRA Beneficiary designation as the Living Trust. I do not understand your first point; it would be unlikely that it wouldn’t qualify. Does this mean that it would qualify for the Ghost rule? I am just trying to understand and present the client with the options available to them.
Thank you.
Denise
Permalink Submitted by Alan - IRA critic on Fri, 2024-04-19 15:46
The trust probably does qualify for look through due to the provisions normally included. As such it is unlikely that the trust would not qualify and the ghost rule only applies to trusts that are not qualified. Therefore, most likely the trust would fall under the 10 year rule, and because the IRA owner will pass after their RBD, annual RMDs to the trust would be required in years 1-9 of the 10 year rule.
That said, if the owner passes at age 80 or earlier the ghost rule will provide more time to stretch the IRA than 10 years. It may be possible to disqualify the trust and trigger the longer ghost rule by intentionally not providing the IRA info to the IRA custodian by the required deadline of 10/31 of the year following the year of death, since providing this info is one of the requirements for a trust to be qualified for look through.
As Bruce indicated, if the trust does not have a specific purpose or benefit, the IRA beneficiary could be changed to the trust beneficiary outright.
Permalink Submitted by Denise Sowell on Tue, 2024-04-23 14:14
Additional information on the above mentioned Trust: it is Qualified and the beneficiary is a friend that is 20 years younger. The purpose of the trust was to keep the money from being inherited by their 2 adult children. The Deceased IRA owner took her first RMD in 2023, however her RBD was April 1,2024. I believe with these new facts the payout time frame is 5 years. If this is correct, would RMDs be required each year?
Thank you for your input.
Denise