Trust as sole beneficiary of IRA
A client who is already taking RMD’s has a IRA with a trust listed as sole beneficiary. The back-up trustee is the sole beneficiary of the trust. There is a spend-thrift provision in the trust that allows for the beneficiary (back-up trustee) to receive half of the IRA assets upon death of the account holder. The other half is to be transferred to the beneficiary at some later date. What is the best course of action to take upon the account holder’s death?
Permalink Submitted by Alan - IRA critic on Fri, 2015-10-30 18:45
The only course of action is to adhere to the trust provisions. Sounds like the first distribution will be 50% of the IRA balance as of a valuation date determined by the trust provisions. That distribution will be passed through the trust and taxed at the trust beneficiary’s rate. But for years after that the trust still has to take life expectancy RMDs (assuming trust is qualified for look through), and accumulate them in the trust until distributed. The trust will have to pay the higher tax rates for those years the RMDs are not passed through.