• / Free eNewsletters & Magazine
  • / My Account
Home>Practice Management>Retiring With Natalie Choate>Trust RMDs After a Spouse Dies

Related Content

  1. Videos
  2. Articles
  1. Roth Advantage May Be Bigger Than You Thought

    Even if your tax bracket doesn't change, using a Roth can mean 20% or more aftertax income in retirement versus a Traditional IRA , says T. Rowe Price senior financial planner Christine Fahlund.

  2. How to Make the Most of Your 401(k)

    In this special presentation, get the answers to key questions about the quality of your plan, whether your savings are on track with your goals, how to allocate assets, and what to do with assets when you leave your job.

  3. 10 Missteps With Tax-Sheltered Accounts

    IRAs, 401(k)s, and Roth accounts are key components of your toolkit, so make sure you get the most out of them.

  4. Tax Talk: What to Do With Dividend Payers

    Christine Benz answers reader questions about how to handle dividend payers in light of potential 2013 tax increases.

Trust RMDs After a Spouse Dies

There is probably no such thing as a simple question regarding minimum distributions.

Natalie Choate, 12/13/2013

This reader illustrates how there is probably no such thing as a simple question regarding minimum distributions. Rarely do I answer "yes" or "no." More often the answer is, "It depends!"

Question: The IRA owner or participant ("Husband") died in 2007. His IRA was payable to a trust. The trust was a qualifying "see-through trust" under the IRS' minimum distribution regulations. Husband's surviving spouse ("Spouse") was the sole beneficiary of the trust. Required minimum distributions (RMDs) have been computed based on Spouse's life expectancy as the oldest trust beneficiary. Spouse died in 2013. Upon her death, the trust is to terminate and be distributed outright to the couple's four children. Do we continue to calculate RMDs based on the Spouse's life expectancy, or do we now switch over to the oldest child's life expectancy?

Answer: First we have a terminology issue. When you say Spouse was the "sole beneficiary" of the trust, do you mean the trust was a conduit trust? Or do you merely mean that she was the sole life beneficiary? The trust was a "conduit trust" if the trustee was required to transmit to Spouse, upon receipt, all distributions the trustee received from the IRA during Spouse's lifetime (minus applicable expenses).

If the trustee had the power to "accumulate" (not immediately distribute to Spouse) any distributions the trust received from the IRA during her lifetime, then the trust was an "accumulation trust," not a "conduit trust." Either type can qualify as a "see-through trust" for minimum distribution purposes, but the answer to your question could be different depending on which type it was.

Now to your question. The basic answer is, you NEVER "flip" over to someone else's life expectancy just because a trust beneficiary dies. The death of a beneficiary (in your case, Spouse) after the participant has died has basically NO EFFECT on the Applicable Distribution Period (ADP).

The "Applicable Distribution Period" (ADP) for an IRA is "carved in stone" once the participant dies. We determine who the designated beneficiary(ies) is (or are) at the moment of the participant's death, and that's it. Subsequent events (such as the death of a beneficiary or the termination of a trust) will have NO effect on the ADP. Regardless of how many deaths or trust terminations there may subsequently be, the ADP "is what it is" on the participant's death.

So basically you don't have to worry about the ADP somehow changing on Spouse's death or flipping over to the children's life expectancy--it ain't gonna happen!

Of course there are ALWAYS exceptions in the minimum distribution rules. Here are the four exceptions to the "carved in stone" rule. In these situations the stone may crumble or expand or otherwise get "uncarved":

Natalie Choate practices law in Boston with Nutter McClennen & Fish LLP, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is a leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.