IRA Trust

Submitted by Jeffrey Evans on Wed, 2019-01-16 18:49

Client wants to establish a Trust to accept his 2M IRA. He has 6 beneficiaries and wants to maintain the tax deferral for them after his death while permitting needed withdrawals. I warned that this would require a special trust and perhaps the IRA should be separated for each beneficiary. Looking for comments and suggestions….



Submitted by Alan - IRA critic on Wed, 2019-01-16 20:40

  • If separate IRA accounts were all inherited by the same trust, if the trust were not qualified for look through, then the stretch for all 6 would be impaired. Note that if the trustee will have discretion to accumulate the IRA RMDs the tax rate owed will be much higher. Client may also be concered with creditor protection for the inherited assets from spouses or other creditors, but if that is a major concern for some but not for others, client could establish separate IRAs for some and name them as designated beneficiaries and have the trust inherit for others. Note that the oldest trust beneficiary determines the RMD factor for all trust beneficiaries, and the separate account rules do not apply. Therefore, the relative ages of these beneficiaries is also a factor.
  • To summarize the considerations:  Need for creditor protection, need to restrict distributions for spendthrifts, family or professional trustee, length of the stretch, and risk of trust not being qualified for look through. Most trusts are qualified for look through but the trustee must be sure to provide the trust information to the IRA custodian no later than 10/31 of the year following the year of death.


Submitted by Bruce Steiner on Sun, 2019-01-20 04:52

  • You need not separate the IRA.  That would only add complexity.  
  • But you’ll probably want to have separate trusts for each beneficiary.  You can then (on the beneficiary designation form) leave the IRA to the separate trusts for each beneficiary.
  • These trusts will be identical to the trusts that receive the nonretirement assets except for the special rules governing trusts that receive retirement benefits.  None of the IRA distributions accumulated in the trusts may ever go to anyone other than an individual or another trust subject to the same restrictions (e.g., no charities).  For more on this, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  https://www.kkwc.com/wp-content/uploads/2015/04/AR20041209132954.pdf .

 



Add new comment

Log in or register to post comments