If your loved one passed away and you are tasked with administering his or her trust, significant responsibilities lay before you. This is even more true if the trust is the beneficiary of an IRA.Special rules apply to IRAs that require a trustee to calculate what distributions need to be made to beneficiaries. They also calculate at what time they need to be made.
If the trust allowed the distributions to be stretched out over someone’s life expectancy, you must figure out what amount. This is known as the required minimum distribution. The required minimum distribution must be distributed to the beneficiary each year.
6 Tips for Determining Required Minimum Distributions
Figuring out required minimum distributions requires a solid understanding of tax and trust administration rules. The following are six helpful tips:
- All potential beneficiaries of the trust must be looked at as of September 30th of the year following the year of the IRA owner’s death. This is true no matter how likely the beneficiary is to receive any benefits from the account.
- Beneficiaries who would only receive benefits from the account as the result of another beneficiary’s death are not evaluated for purposes of calculating life expectancy.
- If the trust names separate shares as beneficiaries of the account, each beneficiary can use his or her own individual life expectancy for determining minimum required distributions. If the trust does not name separate shares, the life expectancy of the oldest beneficiary is used. This is even if the trust divides into separate shares by December 30th of the year of death.
- The oldest beneficiary is determined based on the trust beneficiaries as of the date of the IRA owner’s death who remain beneficiaries as of September 30th of the calendar year following the calendar year of the IRA owner’s death.
- This means that if a person disclaims entitlement to the asset, he or she is not taken into account when calculating required minimum distributions. The same is true if a beneficiary is “cashed out” of the trust by that date.
- If a beneficiary dies before September 30th, he or she is still considered when calculating required minimum distributions.
Contact us today. We are here to help.
Calculating required minimum distributions is not easy. When administering a trust, trustees must be aware of various tax related issues in addition to those relating to IRAs. Fortunately, we can help. We encourage you to initiate a live chat today for more information.
- Tax Rules for Retirement Assets During Trust Administration
- Retirement Assets During Administration
- Assets Unaffected By a Will
AttorneyThe Grossman Law Firm, APC · 525 B Street, Suite 1500, San Diego, CA 92101 · (951) 523-8307