Naming a Trust as Your IRA Beneficiary

Naming a Trust as Your IRA Beneficiary

Do you plan to name your trust as the beneficiary of your IRA? If so, make sure you understand why you are doing it and what the potential consequences are.

IRAs are unique assets and while a trust may be ideal for the majority of your estate, naming a trust as the beneficiary of your IRA is not usually the most tax efficient move.

If the trust is a properly drafted “see-through” trust, IRA RMDs may pass through the trust directly to the individual trust beneficiary. The RMD recipient will be taxed based on his/her individual income tax rate. However, if RMDs are “trapped” in the trust, trust tax rates apply which hits the highest bracket (37%) for trust income over $12,500 in 2018.

Even assuming a trust has been properly drafted, a Multi-Generational IRA (MGIRA) strategy is not available if there are multiple individual beneficiaries. They are all stuck using the oldest trust beneficiary’s life expectancy for purposes of calculating RMDs. The opportunity for the youngest trust beneficiaries to enjoy tax-deferred distributions over their (typically much longer) individual life expectancies is eliminated.

There will always be situations where a trust makes sense. Before naming your trust as the beneficiary of your IRA, be sure that you have all the facts and seek advice from qualified advisors and qualified trust attorneys to help ensure your trust will operate according to your distribution plan.

 

More Updates

IMPORTANT TRUST DEADLINE APPROACHING

For trusts that inherited an IRA in 2019, an important deadline is approaching. The due date to provide required trust documentation to the IRA custodian to ensure that the longest payout period possible is available for the inherited IRA is October 31, 2020. Generally, only individuals who are named on an IRA beneficiary form can

Read More »

CRDS AND ROTH CONVERSIONS – ABUSE OF THE RULES?

The coronavirus-related distribution (CRD) rules for Roth conversions have a gaping hole. An “affected person” (as we have defined in previous blogs), is entitled under the CARES Act to withdraw up to $100,000 from their IRA or workplace retirement plan. A CRD avoids the 10% early distribution penalty for those under 59 1/2, can be

Read More »

Rolling Over an RMD

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal—at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to

Read More »
Scroll to Top