Please note that Portnoff Financial has joined with Tempus Wealth Planning and some information here may no longer be applicable. Please contact Jeremy Portnoff at 949-226-8342 (CA) or 732-226-3113 (NJ) for additional information.  We apologize for any confusion while we are in transition. 

West Coast Phone: 949-226-8342
East Coast Phone: 732-226-3113


Trust Deadline for Inherited IRAs

October 31st is the deadline for trust beneficiaries of IRA owner's who died in 2011.

A trust is not a living breathing person and thus does not have a life expectancy therefore when a trust is named as a beneficiary of an IRA, the "stretch" or life expectancy payouts can be lost (or dramatically reduced) and taxes can be higher unless you plan properly. In order for the beneficiaries of the trust to get the Stretch, the trust must qualify as a "see-through" or "look-through" trust by meeting the following four provisions:

  1. The trust must be valid under State law, or would be except for that there is no corpus;
  2. Beneficiaries must be identifiable;
  3. The trust must be irrevocable at death, and;
  4. A copy of the trust (or at least a list of all trust beneficiaries, primary, contingent, and remainder) must be delivered to the custodian by October 31st of the year following the year of the IRA owner's death.

If a trust is named as a beneficiary, and qualifies as a see-through trust, the life expectancy period is still limited to the oldest trust beneficiary. Even if a trust splits off into sub trusts, the age of the oldest trust beneficiary must still be used unless each sub-trust was named as a beneficiary individually. In such a case with proper use of sub-trusts, each sub-trust beneficiary can use their own life expectancy in determining the payout period.

In it also important to understand whether the trust is a "discretionary" or "conduit" trust in determining who's age is used in determining the life expectancy factor. A conduit trust simply receives the payout from the IRA and then passes it on to the ultimate beneficiary; the funds do not stay in the trust. A discretionary trust on the other hand allows the trustee to limit distributions which means that funds can accumulate in the trust. In the case of a discretionary trust, all POTENTIAL trust beneficiaries must be considered in determining whose age is used for the life expectancy payout. For example, suppose three children are named as primary trust beneficiaries, and the contingent is the IRA owner's parent, the beneficiary's grandparent. If it is a discretionary trust, there is a possibility that the grandparent may receive some of the funds and thus must be considered a potential beneficiary which causes the young grandchildren to be stuck with the grandparent's life expectancy which, is much shorter than theirs, in determining the Stretch period.

Naming a trust as a beneficiary comes with many potential pitfalls and rules to follow. Be sure you have consulted with a properly trained IRA expert before naming a trust as a beneficiary.

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