How do you handle multiple beneficiaries?

Q: Assuming a trust is the beneficiary of an IRA with all the correct conduit provisions in place, how do you handle multiple beneficiaries? Is the required minimum distribution (RMD) based on the oldest beneficiary’s life expectancy and then split amongst all the beneficiaries pursuant to the terms of the trust?

A: You are correct. Assuming the trust contains conduit provisions and only one trust is the beneficiary of the IRA, the required minimum distribution (RMD) is calculated on the oldest beneficiary’s life expectancy and then split amongst the beneficiaries pursuant to the trust terms.  If separate trusts are named in the beneficiary designation form then the RMD’s are calculated over the oldest life expectancy in each trust. This would be the same if there was one trust with multiple sub trusts. Each sub trust would have to be named in the beneficiary form and the IRA would be paid according to the life expectancy of each sub trust beneficiary. The regulations permitting conduit provisions for a stretch were adopted in 2003. Therefore, no trusts before 2003 contain conduit provisions. Many newer trusts and amendments after that date do not include conduit provisions because planners were not aware of the changes.  An old-fashioned trust without conduit provisions may be named as the beneficiary of an IRA, but it generally must be paid out within five years. We are seeing more people establish an accumulation trust (see through trust) for asset protection. The RMD is made each year to the trust, but unlike the conduit provisions the trustee is not required to distribute the RMD’s. These will typically be a stand-alone trust and a separate engagement in the estate planning context.