Trust as IRA Beneficiary
A client has a 403(b)/TSA annuity (soon to be converted to an IRA). She has a trust listed as IRA beneficiary with her daughter as trustee with responsibility to payout directly to one brother and as needed/warranted to special-needs brother. My understanding is that when my client dies her annuity will pay out to the trust and the distribution will be taxable. Further, the money held in the trust for the brother will be taxed at the trust rate if there are any earnings from that money.
I have suggested to the client that she change annuity beneficiaries to the daughter and non-needy son and to the trust for the special-needs son. This will allow the daughter and non-needy son to stretch and the trustee to pay out RMDs to the special-needs son.
Am I on the right track here?
Permalink Submitted by Bruce Steiner on Wed, 2008-11-19 22:46
Whether she wants to provide for all 3 children as you suggest, or only the 2 sons, is up to her.
You are correct that there is nothing to be gained by running the healthy son’s share through a trust that pays out to him at once. Either leave his share directly to him, or keep his share in trust for him.
Unless the amount is too small to warrant administering a trust, our clients provide for their children in trust rather than outright, to keep their inheritances out of their estates, and to better protect against potential creditors (including spouses).
For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf