IRA Inherited Trust — Beneficiary Designation Form — Best Practices?

Submitted by Norman Cook on Tue, 2019-02-05 15:06

IRA owner executes a valid IRA Trust to receive the RMD after his death. In the trust the trustee has the power to create sub-trusts for each of 4 children. The beneficiaries of each of the sub-trust are clearly identified and are all living persons.

Question: Is it the best practice to on the Beneficiary Designation Form list the IRA Trust 100% beneficiary or to list each of the 4 sub-trust as 25% or some other percent beneficiaries?

If each of the sub-trust are listed as beneficiary, then the owner can change the percent each beneficiary is to receive (based on changing conditions) PROVIDING that the IRA trust does not require each child to receive equal shares. Change beneficiary designation form is much simpler than changing the text of the IRA Trust.



Submitted by Kenneth Zaepfel on Tue, 2019-02-05 16:48

I own an inherited IRA fixed annuity with annual lifetime RMDs through the stretch option.  The annuity is a fixed annuity with a lifetime of 7 years.  The interest rate over the first three (3) years is a guaranteed rate of 3.1%. The interest rate for the 4th year (2019) is 1.25% (with a minimum of 1% between years 4 through 7.)  Does it make sense for me to break the contract today, pay surrender charges of $10,000.00, and do a direct transfer into a bank IRA (where I know I can get a higher rate)?  Would the stretch option (for an inherited IRA) still apply if I broke the contract and did a direct transfer today?  I am age 57 and newly retired.  Would I be exempt from the 10% penalty for federal tax reporting purposes, assuming I am able to do this type of transfer/rollover of IRA money? Please advise.  Regards, Ken Zaepfel



Submitted by Bruce Steiner on Thu, 2019-02-07 04:43

  • It’s a matter of style rather than substance.  If you leave the IRA to a trust that divides into separate trusts, it’s easier to prepare the beneficiary designation form and get the custodian to accept it, but it’s more work after the IRA owner dies to distribute the inherited IRA in kind.  If you leave the IRA to the separate trusts, it’s more work to prepare the beneficiary designation form and get the custodian to accept it, but it’s easier when the IRA owner dies.
  • Unless you charge by the document, you don’t need a separate trust instrument.  The trusts that receive the IRA benefits can be in the Will.
  • Bruce Steiner


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