Trust as Beneficiary
I would like to clarify my understanding, given the following situation: A trust is the beneficiary of a retirement plan where the trust beneficiary doesn’t have an unlimited right to the proceeds, such as would be the case with an income beneficiary, with the remainder going to the subsequent beneficiaries upon the income beneficiary’s demise. In this case the IRS looks also at the remainder beneficiaries to see whose shortest lifespan is to be used for RMD purposes. And of course if a remainder beneficiary is a charity then there is no life span.
Is that the only case where the IRS doesn’t stop at the first class of beneficiaries—when there is a restricted payout? If a trust is the beneficiary but the primary beneficiary(ies) of the trust has an unrestricted payout then as far as that part goes it stops right there correct?
Thanks,
Lee
Permalink Submitted by Bruce Steiner on Sun, 2011-12-18 01:29
Your first paragraph is generally correct. I’m not sure I understand your second paragraph. For more on trusts as beneficiaries of retirement benefits, see my article on that subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf .
Permalink Submitted by mk foss on Sun, 2011-12-18 02:10
When a trust can accumulate income from RMDs, the contingent beneficiaries life expectancy is a factor.
When a trust cannot accumulate income from RMDs, the contingent beneficiaries life expectancy should not be a factor. I have seen agreements that specificy that the contingent beneficiary can never be older than the initial income beneficiary – in such a case there would be no downside from considering the life expectancy of an contingent beneficiary.
Be sure to read Bruce’s article. They are ALL very informative.