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RMD IRA and Power of Appointment


Hickoo
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Fact pattern: involves an Irrevocable Trust that was named the beneficiary of an IRA. The Trust does not hold other assets. The IRA owner died in 2004 prior to the attainment of age 50 and the sole beneficiary of the Trust is the decedents child age 23 in 2005. The child was to receive benefits received by the Trust from the IRA during their lifetime. The child had the right upon death by will or general testamentary power of appointment to designate someone other than an individual to receive any amount remaining in the IRA upon death. Thus there is a question of whether the child qualifies as a “Designated Beneficiary.”

In sum, the questions;

  1. Because the child, as beneficiary of the trust, has/had general testamentary power of appointment to designate someone other than an individual/person to receive any amount from the IRA in the event of their death does this disqualify them as a “Designated Beneficiary” and therefore the 5 year payout rule would apply?
  1. Are there any circumstances under which a primary designated beneficiary has the right to name a secondary beneficiary who is not an individual and still be considered a “Designated Beneficiary?”
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I just skimmed your question, but will outline the parameters used to determine whether the trust is able to get a lifetime extension under the RMD rules. There are 4 requirements a trust must meet in order to become eligible for the lifetime payout.

1) Valid under state law.

2) Irrevocable at death of the IRA Owner.

3) Beneficiaries identified (or identifiable) under the trust language.

4) Trust document must be furnished to the IRA Custodian.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Thanks so much for the response... All criteria in terms of Trust establishment were satisfied.

The sticking point is whether because the trust bene (decedent’s child) has/had the testamentary power of appointment to name a nonperson as a beneficiary in the event of his/her death precludes them from being an actaul designated bene and therefore not eligible for lifetime payout? If precluded from being a designated bene they'd be subject to the much shorter 5 year payout/

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As I understand it a testamentary trust does not exist until the death of the beneficiary. Therefore the trust has no right to receive distributions while the individual is receiving RMDs. Under the RMD rules the individual beneficiary of trust that is designated as the beneficiary of an IRA will be eligible to receive the RMDs if the 4 above rules are followed.

mjb

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