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Additional Rules for Beneficiary Distributions


Trust as Beneficiary

A trust can only be treated as an individual beneficiary if it is a qualified trust. To be treated as qualified the trust must:

  • Be irrevocable, or become irrevocable, upon the IRA owner’s death
  • Be valid under state law
  • Have named, identifiable individuals as beneficiaries

In addition the trustee must receive:

  • A copy of the trust instrument or list of all the trust beneficiaries (including contingent and remainder)
  • Any amendments to the trust

If the trust meets these qualifications, the rules for a non-spouse beneficiary apply with one exception:

While the account can be split into individual accounts for each beneficiary, only the life expectancy of the oldest beneficiary can be used to calculate RMDs.

Notes:

  1. A non-qualifying trust is treated as a non-individual.
  2. When a trust is named as beneficiary, the spouse cannot treat the account as their own, even if they are the sole beneficiary of the trust.


Non-Individual or Non-qualifying Trust as Beneficiary

A non-individual is an entity that does not have a life expectancy, such as a charity or foundation, or a non-qualifying trust. There are special rules that apply when a non-individual is named as a beneficiary, even if there are other beneficiary(ies) also named:

  1. If a non-individual is named and the account holder dies before their RMD, the account must be distributed under the five-year rule.
  2. If a non-individual is named and the account holder dies after their RMD, the account must be distributed using the account holder's age at death — reduced by a factor of one each year.


Disclaimers

Under Code Section 2518, the IRS treats an IRA beneficiary making a qualified disclaimer as having predeceased the IRA owner. Thus, the disclaiming beneficiary’s interest in the IRA would pass to the contingent IRA beneficiary. Under Code Section 2518(b), a qualified disclaimer is an irrevocable and unqualified refusal to accept any interest in this property, but only if the following conditions are met:

  1. The refusal is in writing.
  2. The refusal is received by the IRA trustee or custodian within nine months of the IRA owner's death or the time the beneficiary reaches age 21, whichever is later.
  3. The disclaimant has not accepted the interest in the IRA or any of its benefits.
  4. As a result of the refusal, the interest passes without direction either to the spouse of the decedent or to an individual other than the individual making the disclaimer.

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