If you name a trust as IRA beneficiary, you probably will want the trust beneficiaries to be able to stretch out required distributions, based on the life expectancy of the oldest trust beneficiary. However, all trust beneficiaries must be individuals in order to qualify for this extended tax deferral.
Your estate is not an individual. Thus, if your estate is a trust beneficiary, the stretchout won’t be allowed.
Some trusts permit or require the trustee to make payments from the trust to the participant’s estate for payment of debts, expenses, and taxes. The IRS may say this provision causes the estate to be a beneficiary. In order to avoid this problem, you can provide in the trust documents that retirement benefits may not be used for this purpose.
If it’s necessary to pay such expenses from the IRA, you should require the trustee to take distributions from retirement plans prior to September 30 of the year after the year of death. IRS regulation says that any beneficiary will be disregarded as long as its entire interest is distributed prior to September 30 of the year after death.
