If you have or plan to set up a Multi-Generational IRA strategy for your loved ones, Private Letter Ruling (PLR) 201430022 reminds us that naming a trust as the beneficiary of your IRA eliminates the opportunity for each beneficiary to stretch RMDs over their individual life expectancies as the remaining IRA assets continue to grow on a tax-deferred basis.
PLR201430022 involved a trust that was named the beneficiary of a consolidated IRA (originally there were 4 separate IRAs). There were 18 beneficiaries of that trust and they sought relief from the IRS by requesting a PLR asking that the trust be permitted to “assign” the IRA – transfer it out of the trust into 18 separate inherited IRAs for each trust beneficiary.
Since the trust qualified as “see-through” and was drafted in such a way that permitted assignment of the IRA assets, the IRS approved this request. The IRA was assigned to the individual trust beneficiaries in the form of 18 separate inherited IRAs.
Keep in mind that the separate account rule is never available to beneficiaries of a trust which is a severe disadvantage to young trust beneficiaries. Here, the 18 beneficiaries were required to use the oldest trust beneficiary’s life expectancy for purposes of annual RMD calculations. Unfortunately, the oldest beneficiary in this case was older than the deceased IRA owner! Since the original owner died at age 84 (he was past his RMD required beginning date), the 18 beneficiaries were permitted to use the deceased IRA owner’s life expectancy to calculate their RMDs from their respective inherited IRAs.
If you plan to name your trust as the beneficiary of your IRA, be sure that you have all the facts and seek advice from qualified professionals to ensure your trust will operate according to your distribution plan. You don’t want to risk inadvertently destroying a Multi-Generational IRA you planned to set up for your heirs.