Legal Blog

The Weekly Scenario: Deadlines to Know When Dealing with IRA Trusts

Question: My father recently passed away. We just discovered that he named a trust as the beneficiary of his IRA. The trust names the three children as beneficiaries. I’m not sure where to start here, but as an initial matter, what deadlines should we be aware of? Answer: Perhaps the most common error that tends to derail these “IRA trusts” is failing to meet an October 31st deadline. If a trust is named as the beneficiary of an IRA, the IRS requires the Trustee to submit certain documentation to the IRA custodian by October 31st of the year following the IRA owner’s death.

The easiest option to meet this deadline is typically for the Trustee to send a copy of the trust instrument to the IRA custodian. When a Trustee fails to meet this October 31st deadline, required minimum distributions from the IRA to the trust will be accelerated. If the owner had not begun his required minimum distributions, the IRA must be completely distributed within 5 years (versus the potential to achieve a ‘stretch’ over the life expectancy of the beneficiary).

As you can see, there are a number of points to consider when moving. So once those boxes are unpacked and furniture arranged, you should consider updating your estate plan!

Comment: Naming a trust as the beneficiary of an IRA can be beneficial and mitigate the risk that the money from the IRA will be misspent. However, naming a trust as a beneficiary of an IRA could make it more challenging to achieve a ‘stretch’ of the required minimum distributions in order to achieve the maximum tax deferral possible. If you have any questions or would like more information please contact Steve Shane at: sshane@offitkurman.com | 301.575.0313.

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ABOUT STEVE SHANE

Steve Shane Head Shot for webSteve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

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