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BrianE1
New Member

If an asset protection trust is named beneficiary of a traditional IRA, and all beneficiaries of that trust are under age 59, what is the estimated tax due?

 
3 Replies
Opus 17
Level 15

If an asset protection trust is named beneficiary of a traditional IRA, and all beneficiaries of that trust are under age 59, what is the estimated tax due?

Is this a hypothetical or did it already happen?

 

If it did not happen, please get new tax advise from your elder law specialist.  The SECURE Act significantly changed the laws around IRA estate planning and what kinds of trusts can be the beneficiary of an IRA.

 

If this is a Medicaid Asset Protection Trust, I'm not sure why you would want to do this anyway.  An IRA is already protected from Medicaid as long as the annual RMD is used for medical care, so the IRA itself should not be put in the trust.  And since the IRA is not paid to the beneficiaries until the owner dies, there is absolutely no benefit to paying the IRA into the trust instead of directly to the intended beneficiaries.  

 

There are other reasons to set up a trust, of course, but the SECURE act has really changed the rules.  In general, the IRA must be paid out to the beneficiaries of the trust in 10 years or less.  The beneficiaries only pay income tax when they receive the money.   (For example, if you are paid in 10 yearly installments, only that year's payment is taxable income in that year.)  If the trust closes the IRA and keeps the cash itself, it may pay much more income tax than if paid to the heirs since trust tax rates are higher.

 

@dmertz  any thoughts?

 

You really need an expert attorney and estate planner who knows all the new rules. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
BrianE1
New Member

If an asset protection trust is named beneficiary of a traditional IRA, and all beneficiaries of that trust are under age 59, what is the estimated tax due?

Thank you very much for the response.  This is hypothetical and we do have an elder law attorney.   I believe in seeking answers from multiple sources, so thank you again for your input.  Having embarked on this journey over the last year, the one thing I have learned is that the first answer is not always the right answer.

 

You are correct in that the trust in question is an asset protection trust. I'm not entirely certain it's correct to say that an IRA is not counted against a Medicaid applicant as an asset.  Every state is unique and I'm pretty certain that in the state of Ohio it is counted as an asset.  So if a spouse is unexpectedly deceased and their surviving spouse is the beneficiary of their IRA, this disrupts the spend down plan and increases the assets to contend with.

 

I will most certainly look into the SECURE Act and also double check Ohio law on Medicaid eligibility.

 

I welcome any other further words of advice you may have.  Very insightful thank you again.

 

Opus 17
Level 15

If an asset protection trust is named beneficiary of a traditional IRA, and all beneficiaries of that trust are under age 59, what is the estimated tax due?

Just make sure you hire the right expert and don't do anything on your own.  Any mistakes you make at this point are likely to be expensive and come back to hurt you at the worst possible moment.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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