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Guest peachy

The IRS rules are not clear as to how the owner of an IRA who dies before 70, can make sure that his non-spouse beneficiaries do not use a lump sum or any accelerated distribution.

Using a qualified trust allows the beneficiaries of the trust to be considered beneficiaries of the IRA. But does the trust has the power to take away the option of a beneficiaries to select an accelared distribution at any time? HELP

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P: The IRS has no interest in defining how an owner can prevent lump sum distributions being paid to beneficaries because that is not a matter subject to the MRD rules. An IRA custodial account is a contract between the owner and the custodian in which the custodian will pay benefits under the IRA. Custodial agreements usually provide that the beneficary becomes the owner of the IRA with all of the rights of ownership upon the death of the owner (including the right to accelerate payments) because the custodian is not going to act a fiduciary. An owner does who does not want a lump sum to be paid to the beneficary at death can direct benefit payments to a trustee who will pay the beneficaries under the terms of the trust which is a legally enforceable contract.

mjb

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Guest peachy

M: When you say to direct payments to a trustee, do you mean a qualified trust using the beneficiaries age to calculate MRD? At this point are the rights of ownership taken away from the beneficiaries by the trust? Who is the owner at this point? It is my understanding that the trust cannot be owner or beneficiary and still remain an IRA. What I'm missing?

What is the taxation process?

thanks P:

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The trust receives payments as the beneficiary of the IRA and the beneficiary of the trust is a person. See Reg. 1.401(a)(9)-4, q-5 &6. The IRA makes taxable payments to the trustee of the trust based upon the life expectancy of the person under the MRD rules. The trustee will make payments to the beneficiary of the trust in accordance with the terms of the trust, e.g., the trustee may make payments for specific needs or pay a fixed amount each year. Earnings on amounts held in the trust are taxed at the rate for taxable trusts, e.g., 38.6% for amounts in excess of $10,000. The trustee, as beneficiary of the IRA, generally is the owner of the IRA. Trust taxation is extremely complicated and you need to consult a tax advisor on the taxation of a trust.

mjb

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