Trust beneficiary, sort of…
We have a client that named two primary beneficiaries on their IRA:
50% Child
50% John Doe Trust
The problem is that the Trust doesn’t actually exist yet. It is directed through the client’s will that the trust be created upon their death. Can we honor this? I know that the trust won’t qualify as a “qualified trust” beneficiary, and therefore lookthrough treament won’t be available, but I’m not sure if we can even honor the request at all. What are your thoughts?
Permalink Submitted by Alan Spross on Thu, 2011-06-30 19:42
A testamentary trust CAN qualify for look through treatment if it is drafted correctly according to state law, and the other requirements are met. The key is that the IRA beneficiary designation must refer to the actual testamentary trust and NOT to “my estate” or similar even though the trust is created in the will. Of course, since separate account rules do not apply to trusts, the RMD for the trust beneficiaries would be based on the oldest trust beneficiary or remainder beneficiary.
The 50% child beneficiary should be sure to create a separate account by the deadline to avoid having the trust negatively influence their RMDs.
Permalink Submitted by Bruce Steiner on Thu, 2011-06-30 19:59
By the time you have to honor the beneficiary designation, the IRA owner will be dead and the trust will exist.
Other than saving trees, it doesn’t matter whether the trusts that are to receive the IRA benefits are in the Will or in a separate trust instrument.