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I'm hoping this will be the easiest question I have as I help FIL with the financial side of MIL's death. She probably only has a couple days left, but it might be longer.

My MIL's Trad IRA is set up to take out 1/4 of the RMD quarterly. The fourth quarter's will not be taken out until December. Is there any reason to take it out now or should it just stay in the IRA and pass into her trust? The trust is an A/B trust that was set up in the mid-1990s.

FIL doesn't need the money.

Sorry for being yet another clueless person who is sorting out a relative's death and trust issues.
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My MIL's Trad IRA is set up to take out 1/4 of the RMD quarterly. The fourth quarter's will not be taken out until December. Is there any reason to take it out now or should it just stay in the IRA and pass into her trust?

I'd get it out now, and don't forget to cancel the remaining automatic distribution. It will be complicated enough with the trust as beneficiary of the IRA. (Are you sure it's set up that way? Horrible idea)

Phil
Rule Your Retirement Home Fool
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My suggestion - if you do not have a tax professional get one now to help with this. Your options disappear as time passes and you want to make an informed decision before it is to late.

Dusty
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Ok, I got a chance to look over the trust again. It is not an A/B trust. I found a list of the in-laws' IRAs which listed the other spouse as beneficiaries first and the family trust second. It was my FIL who said it would just go into the trust. If I find another opening I will suggest my FIL look into getting the paperwork lined up now and that may prompt him to contact a tax professional.

I also found some papers indicating that the in-laws had consulted with the estate law firm for an update in 2009. I had been afraid that they set all this up in 1995 and hadn't looked at it.

Barbara
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I found a list of the in-laws' IRAs which listed the other spouse as beneficiaries first and the family trust second.

This will not present a problem at your MIL's expected death. I'd still go ahead and take the rest of her 2013 RMD now anyway, just because it's one less thing to have to deal with in a relative hurry.

The problem with having other than "natural persons" names as IRA beneficiaries is that the entire account must be distributed within 5 years after death of the owner. This may create an unwelcome spike in taxable income. Going over all this with a tax advisor is an excellent idea.

Phil
Rule Your Retirement Home Fool
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The problem with having other than "natural persons" names as IRA beneficiaries is that the entire account must be distributed within 5 years after death of the owner.

Not always, it depends on the specifics of the trust. However...

Going over all this with a tax advisor is an excellent idea.

Yes, can't agree more. Specifically with someone well-versed in trust and estate issues. IRAs going into one or more trusts is an area fraught with the potential for problems.

-synchronicity
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TMFPMarti:

<<<I found a list of the in-laws' IRAs which listed the other spouse as beneficiaries first and the family trust second.>>>

"This will not present a problem at your MIL's expected death. I'd still go ahead and take the rest of her 2013 RMD now anyway, just because it's one less thing to have to deal with in a relative hurry.

The problem with having other than "natural persons" names as IRA beneficiaries is that the entire account must be distributed within 5 years after death of the owner."


I dislike questioning one of the resident pros, but I do not think that this is accurate. I believe that the "stretch" provsiions are stillavailableif the trust is a "qualified trust".

REgards, JAFO
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The problem with having other than "natural persons" names as IRA beneficiaries is that the entire account must be distributed within 5 years after death of the owner."
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I dislike questioning one of the resident pros, but I do not think that this is accurate. I believe that the "stretch" provsiions are stillavailableif the trust is a "qualified trust".

REgards, JAFO

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You are correct. The requirements for a trust to function as a beneficiary (I don't think the regs. use the term "qualified trust" for this provision) are described in Regs. 1.401-(a)(9)-4, which is a series of Q&As.

And the more plain-English translation is found in IRS Pub 590, on page 36.

While the rule does remain that a beneficiary must be a natural person, these provisions allow for a trust beneficiary to be treated as the beneficiary of the IRA. For multiple beneficiaries, you use the age of the oldest one. The separate share rule is not allowed.

The 5-year rule DOES apply to an estate.

Bill
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The problem with having other than "natural persons" names as IRA beneficiaries is that the entire account must be distributed within 5 years after death of the owner."

I dislike questioning one of the resident pros, but I do not think that this is accurate. I believe that the "stretch" provsiions are stillavailableif the trust is a "qualified trust".


Oh, heavens, nothing to dislike. There was that time in 1955 I was flat out wrong.

Both JAFO and synchronicity correctly pointed out that it is possible for a trust to be set up so that even if it's the beneficiary of an IRA the payout can be treated as if the beneficiaries of the trust were the stated beneficiaries of the IRA. I should not have made such a general statement.

Here's why I still believe it's a lousy idea to name a trust as an IRA beneficiary.

If the trust doesn't correctly jump through all the hoops we're back to a non-individual as beneficiary and the 5 year payout. Even if everything's hunky dory with the trust as initially drawn up, things do change. To me it's a lot easier to revise IRA beneficiaries than it is to revise a trust. Cheaper too.

YMMV

Phil
Rule Your Retirement Home Fool
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While the rule does remain that a beneficiary must be a natural person, these provisions allow for a trust beneficiary to be treated as the beneficiary of the IRA. For multiple beneficiaries, you use the age of the oldest one. The separate share rule is not allowed.

Interesting. So for our kids, who are still quite young, we could set up a trust for them as our beneficiary to the IRAs and not worry about them dealing with large amounts of money overnight, while not losing the tax advantages that come with their being the direct beneficiary.

IP
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So for our kids, who are still quite young, we could set up a trust for them as our beneficiary to the IRAs and not worry about them dealing with large amounts of money overnight, while not losing the tax advantages that come with their being the direct beneficiary.

I'm not sure what "quite young" means, all things being relative, but if they're minors there are tons of things to discuss with your toes up advisor. This is but one of them.

Phil
Rule Your Retirement Home Fool
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Here's why I still believe it's a lousy idea to name a trust as an IRA beneficiary.

If the trust doesn't correctly jump through all the hoops we're back to a non-individual as beneficiary and the 5 year payout. Even if everything's hunky dory with the trust as initially drawn up, things do change. To me it's a lot easier to revise IRA beneficiaries than it is to revise a trust. Cheaper too.

YMMV

Phil
Rule Your Retirement Home Fool

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True enough, when you have a suitable beneficiary. But when you have a beneficiary who is a child or a spendthrift or isn't competent (and that could be financially or mentally) then the trust device makes a lot of sense.

And these rules which enable trusts to be used aren't in the Code. These regs. are something IRS put out, as quite a liberal move on their part in 2003. And supposedly that's the exact situation they were trying to facilitate. (I've heard anecdotally from various lawyers who sounded like they knew the history.)

Bill
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I'm not sure what "quite young" means..

One almost not minor, one barely not minor. Both too young to be getting their hands on big bucks without some controls.

Never bothered to look into a trust since most of our funds are in retirement accounts, but perhaps that is necessary.

IP
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