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Tax Reporting of IRA Beneficiary Trusts: Conduit vs. Accumulation and RMD Calculations

Designated Beneficiaries, DNI Calculations, Disqualifying Terms, Form 1041 Compliance

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, September 27, 2017

Recorded event now available

This course will provide tax advisers to fiduciaries with detailed and practical guidance on the tax reporting complexities of trusts designated as IRA beneficiaries. The panel will thoroughly discuss the rules for measuring life expectancy for purposes of required minimum distributions (RMDs) and distributable net income (DNI) when using a look-through trust. The webinar will also address specific reporting issues on Forms 1041, 8606 and 5498.

Description

The use of a trust as an IRA beneficiary is an increasingly popular tool for both tax deferral and asset protection. These “see-through” trusts can provide valuable flexibility in a comprehensive estate plan but also carry income tax consequences and strict IRS qualification requirements.

Tax advisers and compliance professionals must understand the unique characteristics of IRA beneficiary trusts to avoid costly tax compliance mistakes.

IRA beneficiary trusts generally come in two types: “conduit trusts” and “accumulation trusts.” Conduit trusts have specific requirements for calculating required minimum distributions over the lifetime of specified beneficiaries. Accumulation trusts generally provide greater “stretch” treatment but are more complex and may result in less favorable income tax treatment.

Fiduciaries and their tax advisers must be able to identify and apply the RMD rules by identifying the designated beneficiary. RMD amounts are measured over the life expectancy of the oldest beneficiary at the time of the IRA owner/trust settlor’s death.

RMD calculations are more complex than would appear, and certain trust provisions (such as powers of appointment) can serve to deny “see-through” treatment.

Listen as our experienced panel provides detailed guidance on the operation and tax reporting of see-through IRA beneficiary trusts.

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Outline

  1. Trusts as beneficiaries of IRA
  2. “Stretch” treatment of RMDs within a look-through trust
  3. Conduit vs. accumulation trust
  4. DNI impact
  5. Tax reporting challenges of IRA beneficiary trusts

Benefits

The panel will discuss these and other important topics:

  • How to recognize a valid IRA beneficiary trust
  • How to distinguish between a conduit trust and an accumulation trust
  • Identifying designated beneficiaries of the see-through trust for purposes of calculating RMD amounts based on life expectancy of “oldest beneficiary”
  • Recognizing terms in the trust document that can disqualify an IRA beneficiary trust from “stretch” treatment
  • What issues does naming a QTIP as beneficiary of the IRA trust create and how to resolve them

Faculty

Denicolo, Christopher
Christopher J. Denicolo, J.D., LL.M.
Partner
Gassman Crotty & Denicolo

Mr. Denicolo is a Florida State Bar Certified Legal Specialist in Estate Planning. He is a contributing author to...  |  Read More

Edwin P. Morrow, III, Esq.
Edwin P. Morrow, III, Esq.
Director, Wealth Transfer Planning and Tax Strategies
Key Private Bank Family Wealth Advisory Services

Mr. Morrow advises high net worth private banking clients on tax, trust and estate planning matters. He previously...  |  Read More