Trust as Beneficiary
Trust is named as beneficiary of an Inherited IRA.
We understand that the oldest child’s life must be used for RMD’s
IRA $ will not be distributed out to the IRA but will be retitled properly and make annual payments of income to the trust.
Question, can the trust distribute the IRA asset proportionally to each of the heirs and have each make thier own annual distributions using the oldest childs life?
Permalink Submitted by Alan Spross on Mon, 2008-04-21 21:38
If any irrevocable trust is the IRA beneficiary, the IRA cannot be assigned until the trust can legally be terminated. Until it can terminate, the IRA distributions (RMD or otherwise) must be paid into the trust and reported on the trust 1041. What the trust further distributes to the trust beneficiaries depends on the terms of the trust. A K1 would be issued to report the amount of taxable income each trust beneficiary would report on their own 1040. If the trust accumulates the RMD, the higher trust marginal tax rates apply.
Of course, the trust must first be qualified for look through treatment in order to recognize the oldest beneficiary as a designated beneficiary for RMD purposes. If it is not, the non individual beneficiary rules determine the IRA RMD distribution to the trust, usually at a much higher rate or even subject to the 5 year rule.