IRA Distribution Question

[bzorc]

A trust is named as beneficiary of an IRA. Owner dies before age 70 1/2, and the trust agreement indicates that the 2 children are the named beneficiaries. Obviously conduit or decendent IRA's could be established to allow each beneficiary to receive the distributions over their lifetime, but the question is that when the payments begin, can the payments be made to a different trust (in the name of the beneficiary) and not directly to the beneficiary? The logic is that it would be considered taxable income to the trust, and thus subject to lower tax rates than if the individual beneficiary included the distribution on their personal tax return.

Any thoughts would be appreciated. Thanks.

[Appleby]

A trust is named as beneficiary of an IRA. Owner dies before age 70 1/2, and the trust agreement indicates that the 2 children are the named beneficiaries. Obviously conduit or decendent IRA's could be established to allow each beneficiary to receive the distributions over their lifetime, but the question is that when the payments begin, can the payments be made to a different trust (in the name of the beneficiary) and not directly to the beneficiary? The logic is that it would be considered taxable income to the trust, and thus subject to lower tax rates than if the individual beneficiary included the distribution on their personal tax return.

Any thoughts would be appreciated. Thanks.

Assuming the trust meets the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5, minimum (post death) distributions may be determined using the oldest underlying beneficiary of the trust.

For tax reporting purposes, all distributions that occur after the death of the IRA owner will be reported on IRS Form 1099-R under the name and TIN of the trust- and generally therefore taxable to the trust.

[mbozek]

I think you should check out the tax rates for trusts at the IRS web site - www.irs.gov. The 35% tax bracket for a trust starts at about $9350 of income as compared to over 300k for a married couple. The trust will avoid taxation on income it receives by passing the income through to the individual beneficaries of the trust.

[Bruce Steiner]

Depending on the terms of the trust, the trustees may be able to distribute the trust assets to another trust for the benefit of the same beneficiaries.