INHERITED IRA’s – SURVIVING SPOUSE AS NAMED BEBEFICIARY
ASKING ON BEHALF OF A FRIEND.
I. The questions at hand:
If the surviving spouse is designated as the primary beneficiary of his wife’s IRA, by way of
a trust document, would he be required to take a complete distribution within the ten
year period?
The better alternative: He is named the primary beneficiary on the IRA account itself.
[In other words, the trust document does not come into play at all.]
II. The facts.
He is named as the primary beneficiary to his wife’s IRA, inside his wife’s trust.
Their daughter is listed as the contingent beneficiary, also inside the trust document.
[The trust was setup prior to the recent legislative changes re: inherited IRA’s.]
My take on the recently enacted legislation is as follows:
he would be subject to the ten-year distribution rule, since the distribution goes through
the trust and then onto him as the surviving spouse. Am I correct?
The better approach would be that the trust is not involved at all. He ought to be
directly named as the primary beneficiary via the IRA account itself.
The benefit to this approach would be twofold:
1] his annual RMD would be of a lesser amount; [based on the pertinent Uniform Lifetime Table];
and 2] there would likely be funds available for their daughter.
[This is important, as his wife indicates that their daughter should also receive inherited distributions from her IRA, once my friend passes away.]
Thank you for your time and effort.
I greatly enjoy and look forward to your Wednesday sessions with John Williams.
Terry Says
Whew — where did you get all this gobbledygook??
Your IRA should have a named beneficiary. That money does not go through probate, but is given directly to the beneficiary. If the beneficiary knows what he/she is doing, they will roll it over into an Inherited IRA. Then they will be required to take distributions, based on their status as a spouse, or relationship to the deceased. The custodian of the IRA can give them that specific information at the time the account is rolled over.
The person inheriting the IRA will then have to name his/her own beneficiary.
There is no way to compel the inheritor to name a specific person, such as a child. So if the original owner wants two people to inherit equally, they can name two people as co-beneficiaries.
Or they could name a second person as “contingent beneficiary” to receive the funds if the main beneficiary dies before the funds can be distributed.
All other assets, aside from retirement accounts and insurance policies, should be retitled in the name of the Revocable Living Trust, which will contain instructions as to their distribution.
I suggest you see a competent estate planning attorney specialist.
