IRA DISTRIBUTIONS PAID TO A TRUST UNDER A WILL FOR THE BENEFIT OF A CHILD

[Guest arlene]

If benefits from an IRA are paid to a trust for the benefit of a child under a Will with distributions made at ages 25, 30 and 35, when calculating minimum distributions, is it based on the life expectancy of the child with accelerations at 25, 30 and 35 or do we presume that the person only has a 15 year life expectancy (presume dad dies and the child is 20 at the time death occurs)?

[mbozek]

You need to review this matter with a tax advisor. Generally if the trust meets certain requirements the mrds can be paid to the trust using the life expectancy of the trust beneficiary. The payments from the trust to the beneficary will be governed by the terms of the trust. I dont understand why a 15 year life expectancy would be used.

[Mary Kay Foss]

Was the trust the beneficiary of the IRA? If so, then you apply the tests in the regs to see if you can "look through" the trust and use the trust beneficiary's life expectancy. If the trust is not required to distribute each year's RMD, then you also have to consider contingent beneficiaries to determine the life expectancy to use for RMDs. The term of the trust (15 years for a 20 year old beneficiary) has no bearing on the calculation of RMDs.

The trustee can always request a distribution greater than the RMD to meet the requirements to pay principal to the trust beneficiary at the specified ages. No adjustment to the life expectancy used for RMDs occurs.

If the trust is not the IRA beneficiary, I'm not sure how you expect this situation to work. If for example, the estate is the beneficiary and the executor decides to use the IRA to fund a trust under the will -- the trust beneficiary's age is irrelevant. When the estate is the beneficiary and if the decedent was taking RMDs before death, you use the remaining life expectancy of the owner from the single life table. If the owner hadn't reached the required beginning date, then the five year rule applies.

Although IRA distributions are taxable income they generally aren't trust accounting income. The trust will pay a lot of income taxes before the IRA is fully distributed to the trust beneficiary.