See-through trust bene dies - options? | Ed Slott and Company, LLC

See-through trust bene dies - options?

Grandma dies, leaving IRA to see-through/qualified trust. Daughter is sole bene of trust, and trust properly commences stretch based on Daughter’s Table I life expectancy. No issues.

Daughter dies early with a sizeable balance remaining in the bene IRA. There is a Granddaughter in play who wants to maintain her mom’s (Daughter’s) remaining stretch schedule.

Setting aside any limiting language in the trust, can this bene account be passed to Granddaughter directly? *MUST* it be passed directly to Grabddaughter as bene of Daughter’s estate?

Or must it remain owned by the trust to maintain the stretch?

If the trust provisions allow the trustee to terminate the trust, the trustee should be able to assign the inherited IRA to the GD if she was the successor beneficiary in the trust. GD must then continue the prior RMD divisor schedule and can name her own beneficiary.

Thanks.  Suppose GD was not successor bene of trust, but was sole bene of Daughter's estate.  I feel that may be too attenuated to allow the account to pass to GD and let the stretch continue. 

Correct.  Hard to believe the trust provisions do not include a remainder or successor beneficiary. 

Is there a IRS Q&A on this point - allowing account to pass to residuary beneficiary upon trust dissolution, and allowing that person to continue existing stretch?  I don't recall anything addressing this topic in 590B. 

590B does not address such technical issues with trust beneficiaries. I assume you are referring to the residual beneficiary in a will when the trust is not specific. Or possibly state intestate provisions or state level trust law would be a factor. You might check with the attorney who drafted the trust or another trust attorney in your state.

  • The inherited IRA goes however the balance of the trust goes at the daughter's death.  it won't affect the distribution period.
  • Bruce Steiner

In my case, Grandma left IRA to see-through trust. RMDs properly paid to trust based on Daughter's life expectancy.  If Daughter died with a remaining balance in trust (she did), and Granddaughter was over age 25 (she is), trust terminates and passes assets to Granddaughter.I feel like the trustee, as part of wrapping up the trust, should be able to transfer the bene IRA to Granddaughter, who can continue stretching based on her mom's RMD schedule, but can't find a good Q&A in the CFR to substantiate.Best I could find is 1.401(a)(9)-5(c)(ii) - https://www.govinfo.gov/content/pkg/CFR-2006-title26-vol5/pdf/CFR-2006-title26-vol5-sec1-401a9-5.pdf Was hoping somebody knew of something better to cite. I also don't know why my paragraph breaks aren't showing up when I post.  Sorry for the wall of text.

  • The numbering is the IRS Reg you posted is not clear, but I think you are referring to the same paragraph copied below:
  • "If the individual beneficiary whose life expectancy is being used to calculate the distribution period dies after September 30 of the calendar year following the calendar year of the employee's death, such beneficiary's remaining life expectancy will be used to determine the distribution period without regard to the life expectancy of the subsequent beneficiary. "
  • The above establishes the applicable distribution period for RMD calculation. The ability for the trustee to have the inherited IRA transferred out of the trust to the successor beneficiary(s) has been established by various PLRs, not be specific reference in the tax code or IRS Regs.
  • Due to the PLRs technically only applying to the applicant, some IRA custodian will still resist the assignment of the IRA out of the trust to the remaining beneficiary. In that case, the inherited IRA will probably have to be transferred to a larger custodian who is more comfortable accepting such assignments. 
 

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