RMD... Bene a Trust

[K-t-F]

If a participant has his bene a trust, do you still use the same RMD factor?

[jevd]

While the account owner is alive you use the uniform table based on a 10 year difference in ages of the named beneficiary. If the trust is a qualifying trust and the account owner's spouse is the sole benefiociary of the trust and the spouse is greater than 10 years younger then the actual joint life expectancy may be used to calculate the RMD.

At death, the life expectancy of oldest trust beneficiary is the determining factor for payments in the year following the year of death. If there are multiple non-spouse beneficiaries of the trust the oldest beneficiary rule still applies unless separate trusts are named as beneficiaries.

Special rules apply to a sole spouse beneficiary of the qualifying trust.

See 1.401(a)(9) regulations.

Noel Ice has an annotated version

HERE

[Belgarath]

There's actually a fair amount of complexity to the general issue of trusts and RMD's.

For minimum distribution purposes, the trust itself is not the "designated beneficiary" - but the underlying beneficiaries of the trust can be if certain requirements are met. See 1.401(a)(9)-4, Q&A 5 and 6 of the 2002 regulations.

I would say that yes, in general, you would use the same factors once the "designated beneficiary or designated beneficiaries" is/are determined. There are various intricacies if some beneficiaries satisfy the definition of "designated beneficiaries" and some do not, and this whole area is, I think, worth engaging the services of someone well versed in distribution planning if there's any substantial amount involved. I think there are perhaps some folks on these boards who are expert in this arena who may provide you some better advice.

Sorry, I hadn't seen JEVD's reply when I was typing this.

[jevd]

I would agree with Belgarath. This can be a complex issue depending on the nature of the trust and the beneficiaries entitlement.

The client should seek professional advice.

My answer was a general one.

BTW Ed Slott and Natalie Choate have some good information on their websites.

Appleby: Care to make any comments on this?

[Appleby]

I think you both said it all…..

In general, if a trust is the beneficiary, then the account is treated as not having a designated beneficiary, unless the trust is ‘qualified’. For this purpose, qualified means meeting certain requirements that allows one to ‘look through’ the trust, and use the life expectancy of the oldest beneficiary of the trust for RMD – including post death RMD- purposes( see bottom of page 47 of the Final RMD Regulations at http://www.irs.gov/pub/irs-regs/td8987.pdf for a definition and page 36 of the 2005 version of IRS Publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf).

For a non-qualified trust the RMD is calculated using the uniform table (i.e. assuming the beneficiary is ten years younger than the participant) during the participant’s lifetime.

If the trust is qualified, then the life expectancy of the oldest identifiable beneficiary under the trust can be used for RMD purposes-including post death RMDs. This means that while the participant is alive, the RMD is calculated using the uniform table. An exception applies if the spouse of the participant is the sole beneficiary of the trust, and she is more than 10 years younger than the participant. In such a case, the RMD can be calculated using the joint life table.

This may seem pretty straightforward. But the complex nature of a trust makes it challenging to determine whether the trust meets the requirements that would allow the use of the life expectancy of a beneficiary under the trust. For instance---assume the trust has two individuals and one charity as beneficiaries (of the trust), that could result in the life expectancy of the beneficiaries not being eligible for purposes of calculating the RMD. However, exceptions may apply if the trust includes certain provisions . Which is why I agree that it pays to get someone who is an expert in the area of trust to assist with making the correct determination.

I agree that Natalie’s book -available at http://www.ataxplan.com/- is a great source of reference for trust matters.