Trust as the Beneficiary of an IRA

[Guest SPollock]

I have a client who recently passed away. He had an IRA that list a Trust as the sole beneficiary. The beneficiary said they were told that they could leave the money in the IRA and take the distributions over the life expenctency of the oldest beneficiary OF THE TRUST. I thought if a Trust is listed as the sole beneficiary, the asset must be paid out immediately to the Trust and the Trust document would determine the payout. Obviously, if the benficiaries could keep the money in the IRA there would be some major tax savings.

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[BPickerCPA]

Look at the Prop regs 1.401(a)(9) Q&A in the D section. That explains the rules for when you can look thru a trust beneficiary to allow stretch out payments based upon the life expectancy of the trust beneficiary.

Even if the trust does not qualify, it doesn't necessarily mean that the IRA must be paid out immediately.

[Guest AJ Milano]

Does Prop Regs 1.401(a)(9) take into account when the trust beneficiary is greater than 10 years younger than the IRA holder? Would the oldest individual named in the trust be able to used his date of birth to determine the joint life expectancy regardless of the Minimum Distribution Incidental Benefit (MDIB) rule?

Any help is greatly appreciated.

[BPickerCPA]

I think you might be misunderstanding the trust as beneficiary rules. The regs (1.401(a)(9)) state the circumstances where a trust is the named beneficiary, that you are permitted to look thru the trust and compute the distributions as if the beneficiaries of the trust were the beneficiaries of the IRA or retirement plan.

Once you do that, all the other rules apply including the MDIB rules.