Trust as IRA/401k beneficiary question
I have the following question: A trust is named as a contingent beneficiary of an IRA or 401k and meets the requirements for the trust to be a proper designated beneficiary. The trust has boilerplate language that distribution to a beneficiary is 1/2 at age 25 and 1/2 at age 30. It also states in the trust powers that the trustee can make all appropriate elections with regard to retirement plans and IRAs.
Will the IRA have to be distributed 1/2 at age 25 and 1/2 at age 30, or can the trustee elect to just take the minimum distributions? Should the 1/2 at 25 and 1/2 at 30 provisions be deleted?
Permalink Submitted by Alan Spross on Fri, 2009-07-10 23:49
Did the primary beneficiary pass prior to IRA owner or are they contemplating a disclaimer based on the trust language?
Permalink Submitted by james morrone on Sun, 2009-07-12 00:27
This assumes that the primary beneficiary ( eg spouse) has predeceased.
Permalink Submitted by Bruce Steiner on Sun, 2009-07-12 03:19
I would not mandate distribution at specified ages. It throws the assets into the beneficiary’s estate for estate tax purposes, and exposes the assets to the beneficiary’s potential creditors (including spouses).
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Alan Spross on Sun, 2009-07-12 03:36
Seems the trust provisions are not clear. However, an inherited IRA can be transferred out of the trust at two different times specified without necessarily distributing funds from the IRA, other than RMDs. Perhaps this is what they were getting at in the trust wording, with the intent to leave it up to the trust beneficiary how fast to distribute the IRA.
Permalink Submitted by Bruce Steiner on Sun, 2009-07-12 11:59
One of the limitations of this forum is that, particularly when the poster is not a lawyer, we don’t necessarily know the precise facts. For example, in this case, we don’t know whether there is an actual Will or trust agreement or whether the question is hypothetical. If it’s an actual case, we don’t know whether the IRA owner has died. My guess was that it involved a living IRA owner because the initial poster asked about deleting the requirement for distributions at ages 25 and 30. As previously noted, in the Wills and trusts we prepare, we usually don’t mandate distributions.
A living IRA owner can’t transfer his/her IRA. But Alan is correct that after the IRA owner dies, it’s possible to transfer the IRA without accelerating the income, unless an executor or trustee transfers the IRA in satisfaction of a pecuniary (dollar amount) bequest. Of course, it may require some effort by the fiduciary (or his/her lawyer) to explain this to the financial institution.