Trust Beneficiary
Question regarding a trust as beneficiary. If the trust distributes to individual beneficiary and charitable beneficiaries does this require 5 year payout? In other words if the trust pays out 20% to charity and the funds are paid out by 9/30 following year of date of death can the remaining individual beneficiaries treat their shares of the IRA as inherited IRAs and stretch out over their life expectancy?
Permalink Submitted by Alan - IRA critic on Tue, 2014-03-11 22:47
If all charitable beneficiaries of the trust are totally paid off prior to 9/30 of the year following the year of death, they are disregarded in determining the beneficiaries of the trust. If the trust is otherwise qualified for look through treatment the life expectancy of the individual beneficiary remaining can then be used to determine RMD distributions to the trust.
Permalink Submitted by Jeremy Polk on Wed, 2014-03-12 12:43
Alan – thanks for the response. Question maybe you can answer in regards to taxes. Assume Trust value of $500k and IRA value of $500k of which trust is beneficiary. Trust states 20% of total value pays out to charity with remaining 80% staying in trust. Can Trustee take $200k from IRA and put into trust and then pay the $200k charitiable distribution out and take a charitable deduction to offset the income tax or by doing this would they in essance be making the charity a beneficiary and thus creating a situation where the IRA would have to be paid out over 5 year or original owners lifetime if they were in pay status? Assumption is this is all done prior to 9/30 year following date of death. Your expertise is appreciated!
Permalink Submitted by mk foss on Thu, 2014-03-13 00:57
Is it possible to take the $200K from the IRA into the trust and pay that out before September 30? By paying them off the charity would no longer be a beneficiary. The $200K should exceed the first year’s RMD. Then the trust can continue taking RMDs based on the life of the oldest trust beneficiary. That sounds like what you’d like to do. The charity would be a trust beneficiary for this one return but would not be considered a beneficiary for purposes of the “look through” IRA. You can pay the IRA out more rapidly than using the oldest beneficiary’s life expectancy but avoidinga mandatory 5 year payout should be good.