IRD – Taxation of Money Pension Plan if paid to a trust
Business owner established a MPP in early 2000’s. When the plan was originally established, the account opening firms (there were 2) named the MPP as owner and beneficiary. The MPP was transferred between trustees multiple times since it was originally opened. The current custodian is an insurance company that required the beneficiary to remain the same in order to accept the incoming transfer of funds. The owner died in 2018. The MPP was established by the owner’s business, and the business had essentially been shut down within a year of the owner’s death. The business checking account was closed in 2019. Problem one: if the MPP assets get paid to the actual beneficiary (MPP with business name) then there is currently no way to cash the check because there are no accounts currently opened in the business name. Question: If the custodian will agree to allowing the MPP to be distributed to a grantor trust established for the 2 minor beneficiaries, is the income taxed at the trust rate or is it taxed as income at the owner’s personal rate? Or something else? Thanks in advance.
Permalink Submitted by Alan - IRA critic on Mon, 2020-02-10 15:19
The plan document may contain a default beneficiary to apply when the named beneficiary is deceased, or in this case defunct. Such default beneficiary could be either the owner’s estate or surviving spouse. Are there other potential beneficiaries such as former employees? Are the minor beneficiaries listed on owner’s will? There could be numerous determinations yet to be made such as if a grantor trust can even be established for this purpose. But to your question, income to or within a grantor trust is typically taxable to the grantor (minors), and that would trigger possible kiddie tax issues.