Contingent Beneficiaries
Grandmother has an IRA. Names her son and daughter as primary beneficiaries (50/50). They do not need the money and will disclaim. Between son and daughter, there are 6 grandchildren. Custodian firm requires a percentage be applied to contingent beneficiaries (in this case 16.666%). One of the contingent beneficiaries will be a Special Needs Inter Vivos Trust. Will the fact that a contingent beneficiary is a Trust impact the stretch benefit to the remaining 5 contingent beneficiaries?
Thank you.
Sue
Permalink Submitted by Alan Spross on Thu, 2008-01-24 05:44
This situation makes it vital that the individual designated beneficiaries establish separate accounts no later than 12/31 following the year of death. They will then be able to use their individual life expectancies for RMDs.
If the separate accounts are NOT established by that deadline, whatever stretch remains available depends on the terms of the SNT and how and when the SNT was established. PLR 2006 20025 established that a self settled SNT would be treated as a grantor trust and the special need beneficiary’s own life expectancy could be used. For purposes of the other beneficiaries WHO FAIL to establish separate accounts, their fate rests on whether the SNT is qualified if established by someone other than the SNT beneficiary or his guardian. In that case, the stretch for all beneficiaries who did not establish separate accounts would be based on the oldest beneficiary of those remaining including the SNT beneficiary. But if the SNT was NOT qualified, then the 5 year rule would apply if owner died prior to the RBD and the owner’s remaining life expectancy would apply if the owner died on or after the RBD.
In a nutshell, the timely establishing of separate accounts is all the more vital with a possible 5 year rule applying to all beneficiaries if the trust is not qualified.