Trust as Beneficiary
D leaves an IRA payable to her Revocable Living Trust (RLT). Beneficiaries of the RLT are C, B & N. Trustee can do what is needed to show that RLT meets the 4 item test for qualifed beneficiary status.
The inherited account has been set up as “The D inherited IRA fbo the D RLT”. I assume the new account will use the EIN of the Trust.
Is it permited under IRS regulations to create three inherited IRA accounts, one each fbo one of the three RLT beneficiaries? For example, can we create an account titled “The D inherited IRA fbo C” and use C’s SSN (Then do that again for each of the other 2)?
If so, is it required that the measuring life for computing RMD on each of the accounts still be that of the oldest of the 3 beneficiaries? (It would be too good to be true if each bene was allowed to use his/her own age to compute RMD on his/her account).
The intent here is to get away from the RLT so a 1041 does not have to be filed every year.
I understand also that just because IRS allows it, the custodian may not. Just want to make sure before I go toe-to-toe with the custodian that I am allowed to do this type of account allocation/split.
The benes also wish to move their accounts. So, if I can do the above, do I need to have new accounts created at the existing custodian (which has already ceated the initial single fbo account) or can I just have portions of the account directed to the new custodians by sending complete instructions to the existing custodian?
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Permalink Submitted by Alan Spross on Thu, 2008-01-24 00:12
I think there was another similar post where the custodian (in that case a 403b plan) was willing to set up the separate accounts with a signed waiver from the successor trustee. You would probably have a challenge finding an IRA custodian willing to do that, but in any event this would not change the stretch for any of the accounts to a period longer than the oldest trust beneficiary’s life expectancy in the IRS’ view, given that separate account treatment is not permitted for trust beneficiaries for RMD purposes.
The IRS may also have a problem with bypassing the 1041 while the trust continues. If the trust is a conduit trust, there should not be too much exposure from the other beneficiaries if something were to go wrong, but if I were the successor trustee, I would get their signoff to eliminate them as the source of any problem.
If the existing custodian sets up the accounts as if there were no trust, I suppose a trustee to trustee transfer to a new custodian would be easy to do because the new custodian would not be aware of the other issues.
Other than the stretch, the rest of the scenario would probably not result in a problem, but since this is not by the book any problem that does surface could snowball in some unanticipated way.
If the trust document allows it to terminate, that may be a cleaner way to proceed to eliminate the 1041, although it would still not result in individual life expectancy use for each account.