Additional Rules for Beneficiary Distributions
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.
- A non-qualifying trust is treated as a non-individual.
- 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.
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:
- If a non-individual is named and the account holder dies before their RMD, the account must be distributed under the five-year rule.
- 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.
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:
- The refusal is in writing.
- 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.
- The disclaimant has not accepted the interest in the IRA or any of its benefits.
- 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.