Trust As IRA Beneficiary

[Guest andyr]

Background: A trust is named beneficiary of an IRA. Upon the IRA owner's death, the trust will pay income to the surviving spouse and the trust remainder is to be paid outright to their 3 children upon the death of the surviving spouse if they have attained 30 years of age. The IRA owner dies before the required beginning date, RMD, and the children have not attained 30 years of age at the owners death.

Question: Upon the IRA owner's death, will all 4 beneficiaries be considered for purposes of determining the required minimum distribution? Keeping in mind that the surviving spouse has only a limited interest in the trust and also that the three children are not yet 30 years of age, do you use the spouse's life expectancy or can you use the oldest of the children to determine the payout? The goal is to strech the IRA payout as long as possible.

I appreciate your comments on this topic. Thanks

[Bruce Steiner]

If the IRA owner is still living, he/she should consult with tax/estates counsel. Based on what you describe, since the spouse is the oldest beneficiary, assuming the trust complies with the recent rulings (such as PLR 200228025 and 200235038), the spouse will be the measuring life. This plan will most likely destroy the rollover, destroy the possible Roth conversion after the IRA owner's death, leak the income to the spouse even if it's not necessary to elect QTIP for the entire IRA, and force the principal to the children, destroying the ability to keep it out of their estates and to protect it from their creditors.

Here is a link to an article I wrote on trusts as beneficiaries of IRA benefits: http://www.bnatax.com/tm/tmm0903_steiner.rtf It appeared in the BNA Tax Management Estates, Gifts and Trusts Journal.

[Guest andyr]

Thanks for the response and the excellent article. I did read somewhere that when determining beneficiaries for RMD purposes, in a trust with multiple beneficiaries, that you should assume the primary dies immediately after the IRA owner and then look to see who is next in line.

In my scenario the spouse has a limited interest (income only) and the children have not attained the age of 30 upon the owner's death, do you ignore the children in the life expectancy calculation because the spouse is the oldest beneficiary or because the children do not have unlimited access to the trust if the spouse where to die immediately after the IRA owner? What if the spouse is younger than the children because they are from a prior marriage? Do you still use the spouse's age for RMD purposes?

Thanks.