Does a required minimum distribution get passed down to a beneficiary in the event of the IRA owner's passing?
My late husband put his IRA into a trust and named me the beneficiary. Does the RMD remain in the trust or does it go to me?
With individuals as beneficiaries the rules are simple. For a non-spouse, the beneficiary would establish an "inherited" or "beneficiary IRA" and would be required to take distributions every year over their own life expectancy. They do not wait until retirement, age 70 1/2 etc... But with a spouse, you take over the IRA as if it was your own all along and is now based upon your age & mortality tables. So you wouldn't be required to take any distributions before 70 1/2. Now the one thing that concerns me is you stated your husband "put into a trust?" I assume you meant he made the trust as the beneficiary. Trust can be a multitude of types and your husband could have triggered the entire IRA amount to be taxable.
But there are a few types of trust, call "see-through" trust that allow for IRA assets to be held in trust & then MRDs will be distributed based upon the "oldest" beneficiaries life expectancy. There are 4 specific requirements the trust must meet to qualify. If it is just the spouse with no kids involved, it is fairly straight forward. If kids are involved, which is usually the case and why the trust in the first place, it can get complicated. Then it must be determined whether it is a Conduit or Accumulation Trust to help determine the rate & amount of RMDs. I hate to try to give complex estate advice as it would be 5 pages long and even then people would misconstrue at first pass (or even the second). My advice is seek someone very competent in estate planning or reach out to the lawyer who wrote this particular trust. If you want or need help, you can certainly reach out to me.
Hope this gets you pointed in the right direction and sorry I couldn't be of more help. This is just too complex of an issue without knowing the fine details or seeing the Trust first hand to even attempt to give you an accurate answer.
Best of luck, Dan Stewart CFA®
I am assuming he named a trust the beneficiary and you are the beneficiary of the Trust?
just on a note: It is usually recommended to name a spouse the beneficiary of an IRA, as it allows the surviving spouse to roll the entire IRA into their own IRA and avoid both estate taxes and take on the Required Minimum Distribution (RMD) of the surviving spouse.
If trust was the beneficiary of the IRA, it depends on type of trust.
If it is a Discretionary Trust: Trustee has discretion – Trustee does not have to pay out all IRA distributions to the beneficiaries of the trust. The trustee is given discretion to either pay out some, all, or none of the IRA distributions to the trust’s beneficiaries.
If it is a Conduit Trust: Post-death annual RMDs flow through the trust to the trust beneficiaries – no IRA funds are retained in the trust. This eliminates any income tax at trust tax rates. Post-death annual RMDs are based on the age of the oldest beneficiary of the trust. It also needs to qualify as a Look-Through Trust. Biggest pitfall is that all beneficiaries of the Trust need to be individuals. (Cannot name a charity or school) or it disqualifies it and then beneficiary cannot take RMD based on their life expectancy.
As you can see, things can get complicated in this area and advised to consult with Attorney or Financial Planner to review the Trust and know how it works.
It depends on your age. If you are the correct age to be receiving RMDs they will go to you. If not, then you can continue to let the account grow until you are the appropriate age to be receiving the RMDs from his account.
Trusts are complicated so it's impossible to give definitive counsel about your situation without more complete information but there are a few things that can be answered from the information you've provided.
Since an IRA must be owned by an individual (That's what the I in IRA stands for)...I don't think your husband actually "put his IRA in a trust". What probably was done is that the IRA beneficiary was designated to a trust. It sounds like you are the beneficiary of this trust. You may also be the trustee. This instruction will make the final distribution of his IRA taxable and end the Required Minimum Distributions (RMDS). The balance of the IRA flowed to the trust, after tax. If you are the income beneficiary of the trust, you can take distributions from it, likely on any schedule you choose.
Tax rules allow for an "unlimited marital deduction" which would have made the balance of your husband's IRA available to be rolled into an IRA in your name and subject to distribution based on your age. This may or may not have been an appropriate estate planning decision for you. Without much more information, it is impossible to know. If a spouse receives the IRA balance of the other marital partner at death, the previous RMD schedule terminates and becomes subject to the age parameters of the surviving spouse. Different rules apply to non-spoiusal beneficiaries.
The answer depends on the language of the Trust, so you won't get your answer unless an attorney can look at the trust, though it goes to the initial beneficiary (you) under a few different trust theories:
Qualified / “See-Through” Trusts: With these trusts, the beneficiary is treated as the beneficiary of the retirement account - RMDs will take place at the rate of the beneficiary.
Conduit trusts: With a conduit trust, all RMDs paid to the trust are immediately distributed to the beneficiary and not accumulated for future distributions to the successor beneficiaries. This language must be written into the trust in order for it to be effective.
Accumulation trusts: These trusts are good if the settlor / plan participant wants to withhold principal and income from the initial trust beneficiaries, and thus it is the opposite of a conduit trust. However, these trusts receive the least desirable RMD treatment, as they must use the life expectancy of the oldest beneficiary, even if he or she is only a contingent beneficiary, and even if there is an extremely low probability that beneficiary will collect the funds.