Trust IRA Beneficiary
We have a situation where the beneficiary of an IRA is a trust. The firm will only pay the check to the trust. The trust can’t hold an IRA, so how should the assets be held and how do RMD’s get paid out? It was a Revocable Living Trust, not a QTIP Trust. Therefore, can we preserve the tax deferred status of this IRA, totaling about $300,000?
Permalink Submitted by Alan Spross on Wed, 2008-07-09 19:33
The IRA should now be re titled showing the beneficiary interest of the trust, eg “James Smith Trust, as beneficiary of James Smith, deceased”.
The nature and provisions of the trust document will determine what RMD options are available, and therefore what tax deferral benefits remain. If the trust is qualified for look through treatment per Pub 590, p 39, the IRA can be distributed to the trust using the life expectancy of the oldest trust beneficiary. If the trust is not qualified, then RMD requirements depend on whether the owner passed prior to or after their required beginning date. The trust may have provisions requiring the trustee to accumulate IRA distributions and hold them in trust so that a spendthrift beneficiary does not have access to lump sums.
If the trust is allowed to terminate, the IRA can then be assigned to the remaining trust beneficiaries, however the RMD requirement will not be changed by this.