trust is the beneficiary. could we set up 2 bene trust?
we have a revocable living trust as the beneficiary. there are 2 individuals that will be benefiting from the trust. my underestanding is the we can not set up bene trust IRA and then once assets are moved to the bene trust then do another move of assets to the individual bene IRA . alternative is to set up 2 bene trust IRA one for each individual .
Is that correct?
Permalink Submitted by Al Fry on Wed, 2009-07-08 18:44
If you want each bene to have their own bene IRA, why not just name them directly?
Permalink Submitted by Bruce Steiner on Wed, 2009-07-08 22:18
Or if you want each child to receive his/her share of the IRA in trust rather than outright, you could leave the IRA to trusts for your children.
Permalink Submitted by Anonymous (not verified) on Thu, 2009-07-09 05:20
It is an interesting question.
I agree with some of the thoughts in the previous posts about just naming the individuals outright. Makes a lot of things easier during the transfer process. I would even be a proponent of naming the two as 50% Bene each, so they share in the investment performance equally (I have seen some segregate the accounts and thus provide children with a different account value at death, because they listed them as Bene on different investments; bad move I think).
Ofcourse, the trust option is good, because it may provide some control by the original owner on how the money is used. There will be some RMD ramifcations too, depending on if it passes the test of a qualifying trust. That addresses your question directly. Yes, if qualifying trust and the trustee signs off, the account may be moved into two individual Bene IRAs in FULL control of each Bene. If there is a large age difference between the two, there is that RMD rule that the RMD for BOTH needs to run under the LE of the oldest.
Just some thoughts…..
pmk
Permalink Submitted by mk foss on Fri, 2009-07-10 00:58
I like the trust idea rather than naming the beneficiaries directly because it applies some constraint in liquidating the retirement plan. An inherited IRA has no 10% penalty and liquidating it as soon as possible would be a temptation – at least it would be a temptation for my kids.
Bruce has often mentioned some of the good reasons to name a trust as beneficiary but the ability to have a trustee decide whether any distributions in excess of the RMD should be made resonates with me.
Permalink Submitted by Al Fry on Fri, 2009-07-10 01:06
I would name my three daughters direct (20% each); my two sons in trust.
Permalink Submitted by Bruce Steiner on Fri, 2009-07-10 02:00
If you leave IRA benefits to a beneficiary in trust rather than outright:
1. The trustees have to take at least the required distribution from the IRA. They can take more (but generally wouldn’t as long as there were other assets available for current needs).
2. Assuming the Will or trust agreement contains the appropriate degree of flexibility, not only can the trustees decide whether to distribute more than the required distributions from the IRA to the beneficiaries, but the trustees can also decide to distribute less than the required distributions from the IRA to the beneficiaries (or even not to make any distributions at all). If the trustees decide to distribute less than the required distributions from the IRA, they can accumulate some or all of the required distributions in the trust. For example, if the IRA is $1 million, and the required distribution from the IRA is $30,000, the trustees could (among other choices) (i) take $30,000 from the IRA and distribute it, (ii) take $40,000 and distribute it, or (iii) take $30,000, distribute $10,000, and retain $20,000 in the trust. In exercising their discretion, the trustees can take all of the facts and circumstances into account, including the beneficiaries’ current and anticipated future needs, the trust’s and the beneficiaries’ income tax situations, and the beneficiaries’ estate tax situations.