Trust as IRA Beneficiary and RMD
IRA owner died after age 70 1/2 (age 86) and his wife was the beneficiary. She disclaimed the IRA and according to the will the IRA went to a Trust. The wife is the beneficiary of the trust during her lifetime and the kids are beneficiaries after the wife dies. The will states that the wife will be the “designated beneficiary” and that all of the RMD will be distributed to her each year from the trust. The wife and her son are trustees of the trust. The wife was age 83 when the IRA owner died. How is the RMD calculated? Is it based on the single life table using the wife’s age in the year following the year of death or is it based on the decedent’s age and then reduce the age by 1 in each subsequent year?
Permalink Submitted by Marvin Rotenberg on Tue, 2010-02-09 21:34
If the IRA owner dies on or after his or her required beginning date (RBD), death RMDs are based on the longer of the life expectancy of the designated beneficiary or the deceased IRA owner. The beneficiary is determined as of September 30 of the year following the year of death. Death of the IRA owner after their RBD the spouse beneficiary would use their age recalculated single lif expectancy or the deceased IRA owner’s remaining non recalculated single life expectancy.
The following requirements must be met for the oldest beneficiary to use their lif expectancy:
1. The trust must be valid under state law.
2. The trust is irrevokable
3. The trust beneficiaries are identifiable and
4. By Ocober 31 of the year following the year of the IRA owner’s death the trustee provides a copy of the trust document to the IRA sponsor.
Marvin
Permalink Submitted by Bruce Steiner on Wed, 2010-02-10 02:58
Why would she disclaim into a trust in which she gets all of the required distributions each year? That throws some (quite a bit if she lives for a while) of the money back into her estate, while not giving her the benefits of rolling it over, naming new beneficiaries, getting a longer stretchout, and possibly converting to a Roth?
And why would her husband create such a trust?
If it’s still within 9 months of his death, there may be some possible ways to improve upon the situation.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by mk foss on Wed, 2010-02-10 18:19
I’m having some difficulty following this. First, the spouse was the beneficiary who disclaimed. Then the contingent beneficiary would take over but the first poster said that the will determined that the disclaimed IRA would go to the trust. Normally the will would only be a factor if there was no contingent beneficiary or if the estate was named as a contingent beneficiary.
If there were no contingent beneficiary, the custodian’s agreement may direct that the estate be the beneficiary (since the spouse is treated as predeceasing).
If the IRA passes to the trust from the estate, you use the rules for an estate beneficiary and not a trust beneficiary.
If the trust was the contingent beneficiary, disregard this and carry on with the previous comments.