Naming Inherited IRA Beneficiaries
We have a client who would like to leave a portion of her Inherited IRA to a niece and nephew, both of whom are currently minors. The client further wants to require that these inherited portions be left in trust, with a third person named as trustee, until these minors reach age 30. Is this possible, and if so, what would be the tax implications to these beneficiaries – would taxes on their inheritance be due immediately? Thanks for your assistance.
Permalink Submitted by Alan Spross on Thu, 2007-08-16 02:49
A qualified children’s trust could be used to address this situation, and the provisions would probably have to include who would be a suitable trustee under state law. The RMDs would be paid to the trust and accumulated in the trust until the trust provisions allowed it to terminate. Although the trust tax brackets are compressed and therefore much higher than the beneficiary tax rates, at least any RMD made at their long life expectancy rates would be a very small percentage of the account and should really be much smaller than the earnings for the IRAs through age 30. Of course, if the client lives long enough and the children age into majority, she could change her mind and not fund the trust by naming the beneficiaries directly on the IRA.