Trust as IRA Beneficiary, transferring to Non-Spouse
Can someone please help clarify:
Trust was named as beneficiary to the IRA
The IRA owner passed away
IRA is now a trust beneficiary IRA
There two beneficiaries of the trust (children of the deceased) who want to split the IRA and transfer the IRA into their own beneficiary IRAs and then close the estate.
Can they do this? Thanks in advance for your input.
Permalink Submitted by Alan Spross on Wed, 2009-07-08 23:53
It depends on whether the terms of the trust allow it to terminate. If so, then such evidence can be presented to the IRA custodian in order to transfer the IRA to the trust beneficiaries.
However, the RMD issues here are also important. If the trust is qualified for look through treatment, the IRA custodian should already have been provided with a copy of the trust. If qualified, the life expectancy of the oldest trust beneficiary applies to both of them, and will continue to apply to both of them even after the trust is allowed to terminate. If the trust was not qualified, then the 5 year rule applies if the owner passed prior to his RBD, and if after the RBD the remaining non recalculated life expectancy of the deceased IRA owner applies.
Some parents leave IRAs in trust for children to take advantage of creditor protection including spouses, or to control the distribution rate of the IRA. If so, the trust will probably not provide for termination and RMDs will have to be issued to the trust indefinitely.
Permalink Submitted by Jon Teran on Mon, 2009-08-03 22:48
What are the potential consequences if the trustee divides up the trust benficiary IRA and transfers the trust beneficiary IRA assets into the IRAs of the trust beneficiaries and later finds out that the trust does not allow for termination? Would this be considered a taxable distribution as opposed to a rollover? Can this be undone? Would the IRA custodian prohibit such a transfer to begin with?
Thanks.