Traditional and Roth IRAs in Trust | Ed Slott and Company, LLC

Traditional and Roth IRAs in Trust

When I pass away my traditional and roth IRAs will go to my spouse. When my spouse passes the IRAs, along with any other assets go into "Separate Share" trusts for our kids.
1. It's my understanding that the RMDs for the kids will be based on the oldest child's LE rate. Is that correct?
2. What tax rate, for the traditional IRA distribution, will the RMDs be taxed at, the trust rate or the kids individually rates?
3. If one of the siblings passes away without any descendants, the remaining funds in that trust are to go back to the surviving sibling. Is this a simple transfer of assets to that siblings trust?
4. Do the federal or state estate/inheritance tax exemption limits apply?
5. Currently my spouse and I are younger than 70.5 and not taking RMDs. Do any of your answers to the above questions change once we start taking RMDs?

Your initial presumption is dependent on your surviving spouse naming the trusts as her beneficiary. Q1 - probably so unless there are separate trusts for each rather than just separate shares. Q 2 - this depends on the provisions in the trust and perhaps trustee discretion. If IRA distributions are to be retained in the trust, the compressed trust tax rates will apply. Q 3,4 - best addressed by a trust attorney.   Q 5  No, but the RMD calculations will depend on the trust being qualified for look through and those rules vary per death prior to or after the RBD.  For example, if the trusts are not qualified for look through and the IRA owner passes prior to their RBD, the 5 year rule will apply. If IRA owner passes after the RBD, a qualified trust looks to the RMD of either the oldest, or to each of kids, but for a NQ trust, the IRA owners remaining life expectancy will apply to both. The attorney that drafts these trusts should be able to answer these questions, particularly those regarding how separate share trust compare to actual separate trusts.  Finally, the prospective legislation (SECURE Act or RESA) can result in reduced stretch distribution periods for non spouse beneficiaries of all kinds. Most likely, this legislation will take affect for deaths in the year following the year it becomes law.


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