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IRS confirms “clawback” will not apply to gifts made under the increased estate and gift tax exemption

The estate and gift tax exemption is the amount that an individual can transfer to another individual tax-free either during lifetime or at death before a 40% transfer tax is imposed.

What is the current estate and gift tax exemption?

In 2017, the Tax Cuts and Jobs Act (TCJA) raised the base amount from $5 million to $10 million per person. The $10 million base is adjusted annually for inflation. The inflation-adjusted exemption amount for 2019 is $11.4 million for 2019 per person. It will increase in 2020 to $11.58 million per person.

The TCJA also doubled the amount of exemption that may be rolled over, or “ported,” from one spouse to another at the death of the first spouse.

What is the TCJA sunset provision?

The increased exemption amount is temporary and scheduled to sunset, or revert, to $5 million per person (adjusted for inflation) as of January 1, 2026.

The sunset provision created a question as to whether gifts of greater than the inflation-adjusted $5 million exemption made between 2018 and 2025 would be subject to estate tax if the donor died after January 1, 2026. Similarly, the sunset provision also created confusion as to whether amounts ported from one spouse to another in excess of the inflation-adjusted $5 million exemption would remain available to the surviving spouse after January 1, 2026.

What will happen under the regulation issued by the IRS?

On November 26, 2019, the Treasury Department and the Internal Revenue Service issued final regulations under IR-2019-189 confirming that individuals who take advantage of the increased gift tax exclusion or portability amounts in effect from 2018 to 2025 will not be adversely impacted when TCJA sunsets on January 1, 2026. This regulation was part of Treasury Decision 9884 which implemented changes made by the TCJA.

How will the estate tax be calculated after December 31, 2025?

The final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the basic exclusion amount applied to gifts made prior to January 1, 2026, or the basic exclusion amount applicable on the date of death. A similar special rule applies to an exemption that is “ported” to the surviving spouse.

As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025. Similarly, spouses who have the benefit of additional, “ported” exclusions made in this period will continue to have the benefit of those ported exclusions after 2025.

An example

In application, suppose an individual transfers $10 million into an irrevocable trust in 2020, makes no further gifts, and dies owning $3 million of other, taxable assets after January 1, 2026, when the estate tax exemption has reverted to an inflation-adjusted $5 million. Assume the inflation-adjusted exclusion amount is then $7 million. The estate tax would be calculated with an exclusion amount of $10 million, not $7 million, leaving only the $3 million of remaining assets exposed to estate tax.

The regulations set out a “use it or lose it” benefit. If an individual dies after 2025 and did not make gifts between 2018 and 2025 in excess of the sunsetted exclusion amount in effect at his/her death, the excess exclusion is lost.

Of course, this is a very simple example. Many situations will be much more nuanced. The final regulations provide a window for strategic gift planning that should be discussed with your estate planning attorney.

Advanced care planning can’t start too soon
Baby boomers are at the crest of retirement. Born just after World War II, they are between 55 and 70 years old today. The Insured Retirement Institute’s annual study, “Boomer Expectations for Retirement,” found that more than half of the baby boomers surveyed think their health care costs will consume up 20% of their retirement income, or even less. But analysts predict a healthy couple in their mid-60s today, might actually need $300K–$500K just to cover the supplementary insurance, copays, prescription drugs, and other out-of-pocket health care expenses that greet the aging. According to the study, less than ten percent of baby boomers have enough saved up.

A PBS report estimated 70% of seniors will eventually require long-term care, yet only half of seniors surveyed anticipate this need. An overwhelming majority (77%) of seniors intend to live at home for the rest of their lives. This may be optimistic, considering the 70% likelihood of needing long-term care services as one ages. And—spoiler alert—Medicare does not pay for most long-term care or personal (custodial) care services. Current figures report payments of private long-term care insurance benefits at nearly $6 billion per year.

It’s important to become educated in the living care options that will be available for your future. Recognizing there’s a chance of needing long-term care, and planning for those costs, are subjects to discuss with your financial advisors and estate plan attorney. For additional information on services and advanced care planning, check out www.longtermcare.gov.

Survey by the National Council on Aging, as reported by MarketWatch.
After choosing to stay at home, assisted living communities are seniors’ next favorite choice for retirement living. Preferences for other options are depicted in the chart.
Power of attorney: A powerful estate planning tool
Consider this common scenario faced by many families. An elderly woman with dementia has been living in a nursing home for the past year. Her children have been working hard to maintain her home and pay mom’s bills. Mom is quickly running out of money and the kids decide that mom needs to sell her house in order to meet her ongoing (and increasing) financial needs. The children contact a real estate agent who quickly lists the home for sale and soon after a buyer emerges to purchase the home.

The buyer hires an attorney to help ensure that the transaction goes smoothly and that proper title is transferred to her client. The attorney reaches out to a child of the elderly woman and asks, “Is your mother able to understand and sign both the purchase and sale agreement and deed?”

Mom has not previously executed a power of attorney. A power of attorney is a legal document that allows someone (typically called an “agent” or “attorney”) to make financial decisions on behalf of someone else (typically called the “principal”). If mom had previously executed a valid power of attorney, mom’s named agent (presumably one of her children) likely would have been able to sign all of the necessary paperwork in connection with the sale on mom’s behalf.

Given that there is no agent with the authority to sign on behalf of mom, the children would likely need to resort to a court proceeding in which the court would ultimately appoint an individual (most likely the same child that mom would have named as her agent under a power of attorney) to have authority to act on mom’s behalf with respect to the sale. The court proceeding (known as a conservatorship in Massachusetts) might take several months, involve multiple attorneys (further depleting mom’s limited resources), and given the delay, the buyer may go elsewhere and be unwilling to wait for the court proceeding to conclude.

As part of the estate planning process, your attorney can guide you through the considerations involved in selecting the right agent or agents to make financial decisions on your behalf. A power of attorney document can be as short as three or four pages, but if you become unable to make financial decisions on your own behalf, the ramifications of not executing this document can cost your family time and money.
2020 Estate, Gift and GST tax exemptions announced by IRS
Effective in 2012, the amounts that a U.S. citizen or resident can transfer to another individual free of estate, gift or Generation-Skipping Transfer taxes (collectively, the “transfer taxes”) have been set at a base amount, which is subject to an annual adjustment for inflation.

What is the transfer tax exemption for 2020?

On November 6, 2019, the IRS announced that the 2020 transfer tax exemption amount is $11,580,000 ($10,000,000 base amount plus an inflation adjustment of $1,580,000).

The tax rate applicable to transfers above the exemption is currently 40%.

What is the gift tax annual exclusion amount for 2020?

The gift tax annual exclusion allows taxpayers to make certain gifts without eroding the taxpayer’s lifetime exemption amount. The gift tax annual exclusion in 2020 remains $15,000 per done.

What payments are excluded from the annual and lifetime gift tax exemption?

A donor may exclude from his annual and lifetime gift tax exemption all gifts to his/her spouse as long as the spouse is a U.S. citizen, payments of tuition made directly to the donee’s educational institution and payments for medical expenses (including medical insurance) paid directly to the donee’s medical or medical insurance provider.

There is a separate gift tax annual exclusion for gifts to spouses who are not citizens of the United States: that amount is $157,000 in 2020.

Are the current high transfer tax thresholds permanent?

The Tax Cuts and Jobs Act, which was enacted in December 2017, provided that the current $10,000,000 base exemption amount for the estate, gift and Generation-Skipping Transfer taxes is effective through 2025, and reverts to the $5,000,000 base exemption amount established by the American Taxpayer Relief Act of 2012 on January 1, 2026.

How has the federal transfer tax exemption amount changed over the years?

The transfer tax exemptions (and the highest marginal transfer tax rates) have undergone several sweeping changes in the last two decades. The exemption amounts have been fully unified only since 2011.

Since 1997, the estate, gift tax and Generation-Skipping Transfer tax lifetime exemption amounts have changed as follows:
                                             Estate & Gift*                GST lifetime
                                             lifetime exemption:      exemption:
                    1997                  $600,000                        $1,000,000
                    1998                  $625,000                        $1,000,000
                    1999                  $650,000                        $1,010,000
                    2000                  $675,000                        $1,030,000
                    2001                  $675,000                        $1,060,000
                    2002                  $1,000,000                     $1,100,000
                    2003                  $1,000,000                     $1,120,000
                    2004–2005*      $1,500,000                      $1,500,000
                    2006–2008*      $2,000,000                      $2,000,000
                    2009*                $3,500,000                      $3,500,000
                    2010*                $5,000,000**                          ***
                    2011                  $5,000,000⁑                    $5,000,000
                    2012                  $5,120,000                      $5,120,000
                    2013                  $5,250,000                      $5,250,000
                    2014                  $5,340,000                      $5,340,000
                    2015                  $5,430,000                      $5,430,000
                    2016                  $5,450,000                      $5,450,000
                    2017                  $5,490,000                      $5,490,000
                    2018                  $11,180,000⁑⁑                $11,180,000
                    2019                  $11,400,000                    $11,400,000
                    2020                  $11,580,000                    $11,580,000

Notes:
* Between 2002 and 2010, the lifetime exclusion for gifts was capped at $1,000,000.
**In 2010, estates had the option to choose between a “no estate tax” system that afforded limited step-up in tax cost for the decedent’s assets, or a $5,000,000 federal estate tax exemption with full step-up in tax cost.
***In 2010, the GST tax exemption was $5,000,000, but the GST tax rate was 0.
⁑ The American Taxpayer Relief Act of 2012 set a base amount of $5,000,000, subject to inflation.
⁑⁑ The Tax Cuts and Jobs Act set a base amount of $10,000,000, subject to inflation; the Act provides that the base amount sunsets and reverts to prior law effective January 1, 2026.

What does this mean for you?

The changing landscape of the federal transfer taxes has led to challenges and opportunities in estate planning. In view of the recent changes and the scheduled sunsetting of the estate, gift and Generation-Skipping Transfer tax exemption amounts, please consult with your Nixon Peabody LLP attorney about your estate plan.
What to do with your vacation home
Family vacation homes are emotionally tied to family holidays and gatherings, and are often owned by grandparents or parents who are covering all of the expenses of the vacation home.

Overall considerations in transferring ownership of a vacation home

The older generation should have a conversation with the younger generation to be sure that they want to keep the vacation home in the family. There will be tension among family members who live close to the vacation property and those who live farther away, and conflicts may arise with respect to how much different family members may use the property at different times in their lives.

Some of these issues may be alleviated by sufficient funding of the family vacation home ownership vehicle to cover future expenses. Also, the family must address whether to have buy-out provisions in case a family member does not want and will never use his or her “share” of the vacation home.

There are many options to consider in planning for how to hold legal title and arrange ownership and management of a family vacation home. Each family must determine what option is best for their situation and the state in which the residence is located. Options for holding title to the family vacation residence include the use of a trust, limited liability company, corporation, ownership as tenants-in-common, or joint tenancy with rights of survivorship, or some combination of these forms of ownership.

Why do some families prefer ownership to be in a trust?

The use of a trust provides the older generation the most control over the ultimate ownership of the family vacation home for the younger generation as well as over the proceeds from a possible sale of the family vacation home.

There are significant estate tax advantages of using a trust as the older generation can allocate generation-skipping transfer tax exemption(s) to the trust so that the trust will not be taxed in the estates of the younger generation family members and can pass free of estate tax down the generational lines to remote descendants.

Use of a trust makes it easier to ensure that ownership of the family vacation home will be passed on to family members who are lineal descendants and not to spouses (or divorcing spouses). Trust ownership means that the family vacation home can continue to be held for the benefit of younger generations, assuming that is the goal of the family.

By funding the trust with cash, the older generation can also ensure that there will be sufficient funds available for eventual capital improvements to the property such as a new roof or furnace, as well as funding part or all of the annual operating expenses.

Why do some families prefer ownership in a Limited Liability Company?

Some families use a limited liability company (LLC) to hold legal title to the family vacation home. The LLC can be used alone as the owner with individuals as the members, or the LLC can hold legal title with the trust as the sole member of the LLC.

Ownership through an LLC provides creditor protection and flexibility in ownership. If membership interests in the LLC are owned directly by the children (as the first younger generation), however, then each child’s share of the family vacation home will be subject to estate tax in that child’s estate. Depending on the value of the vacation home, this could create an estate tax problem for each child, which would need to be addressed by life insurance or other sources of liquidity (such as the ability of other family members to buy that child out).

These are complex issues and the family dynamics that come into play can make drafting the LLC Operating Agreement more complicated.

Management of the vacation home

In order to help ensure family harmony, it is very important that the ownership vehicle provide rules which govern the use of the property and how expenses will be paid. This is somewhat dependent on how much liquidity there is in the ownership vehicle. If ownership is in an LLC, the agreement should address what happens if a member cannot cover his/her shared expenses.

It is also critical that there is sufficient property insurance in place to protect the family’s interest in case of a fire or slip and fall by a visitor or renter. If it will be necessary for the younger generation to rent the property for some portion of the year in order to cover operating expenses, then it is advisable for an LLC to hold legal title to the vacation home.
Help your loved ones by pre-planning your funeral
The days immediately following the death of a loved one are a difficult time often accompanied by having to make big decisions, including decisions regarding funeral arrangements and disposition of remains. The burden of this can be eased by planning in advance for your funeral and burial arrangements. Advance planning can also reduce disagreements among family members if some have a traditional perspective while others take a contemporary approach.

Leaving wishes regarding your funeral and disposition can be done informally through family conversations where everyone is present or more formally through a contract with a funeral home or written instructions. In Massachusetts, a contract can be entered into with a funeral home making arrangements in advance for funeral and burial services and arranging with a bank or insurance company for payment of funeral and burial costs. Payment is made to the funeral home at the time services are actually rendered. Another option is to leave a signed and witnessed written document leaving instructions regarding the nature of funeral services and disposition of remains.

In Massachusetts, first priority is given to the contract with the funeral home. In the absence of a contract, a written document signed and witnessed will control. In the absence of either of those, a funeral home must follow the instructions of the deceased person’s next of kin in the following order of priority:

     1. the surviving spouse of the deceased
     2. the surviving adult children of the deceased
     3. the surviving parent(s) of the deceased
     4. the surviving brother(s) or sister(s) of the deceased
     5. the guardian of the person of the deceased at the time of his or her death
     6. any other person authorized or obligated by law to dispose of the remains of the deceased

If there is disagreement among the members of any of the above groups, a majority rules, and if a majority cannot be reached, a court decides. This may be important to keep in mind if you are not survived by a spouse but are survived by children or siblings who may not agree among themselves about funeral arrangements and disposition.

A little pre-planning with respect to funeral arrangements and disposition can alleviate potential family conflict as well as allow you to make your own decisions about your funeral and disposition. Just as you would plan for your finances after death, exercising the ability to leave assets how and to whom you wish, you can also do the same for your funeral.
Time to check up on your estate plan
We recommend to our clients that they do a “checkup” of their estate plan every three to five years. A checkup is necessary to ensure that your estate plan continues to be effective for gift and estate tax purposes. In addition, there are several non-tax reasons for checking up on your estate plan. Here are some things you should consider. 

Where are your estate plan documents located?

In most situations, we hold original estate plan documents for our clients in our vault. We provide hard copies and digital copies to our clients. Over the course of the last few years, we have been maintaining digital records of all of our clients’ signed estate planning documents so that they are easily and quickly retrievable. If you do not already have digital copies of your estate plan documents, your estate plan checkup is a good time to ask for them. 

Does the plan still make sense from a disposition standpoint?

Perhaps your estate plan includes provisions for elderly parents or young children. If your elderly parents have died or if their financial circumstances have changed, your plan may need to be revised. Similarly, you may have had young children or teenagers when you created your estate plan, and now your children are older and their needs, circumstances and future outlook may have changed. Initially, you may have created an estate plan that called for holding assets in trust for your children until they reached a particular age (such as 25 or 30). Upon review, however, changes in circumstances may dictate holding assets in trust even longer for your children—perhaps for their lives. You can achieve important creditor protection benefits for your children (including protection of assets from a child’s divorcing spouse) by keeping assets in trust for their lives.

Review your named fiduciaries.

An estate planning checkup will include a review of the persons whom you have named as the personal representative of your estate, trustee of any trust you’ve created, guardians of minor children, and agents under your power of attorney and health care proxy. With the passage of time, the persons whom you have named to serve in these roles may no longer be appropriate. Guardians of minor children, in particular, need to be reviewed every few years. The persons you named as guardians when your children were infants may no longer be appropriate for your ‘tween or your high school-aged child. Similarly, you may have chosen a sibling or parent to serve as personal representative or trustee, whereas a child who is now an adult may be the better choice. You should also review any professional fiduciary choices previously made, as those may need to be updated due to changes in financial institutions and retirement of key advisors.

Review beneficiary designations.

The beneficiaries of insurance policies and retirement plans should be reviewed to determine if they are still appropriate. In some instances, it may be desirable to name your revocable trust as the beneficiary of an insurance policy or retirement plan. Alternatively, it may be most beneficial to name a surviving spouse or your adult children. Your lawyer can advise you as to the best choice for your personal situation.

Review your durable power of attorney.

Under the Massachusetts Uniform Trust Code (MUTC), it is now possible to give your agent under your power of attorney the authority to amend and revoke your revocable trust. This is a significant power and should be discussed with your estate planning attorney.

Review the title to your assets.

The best planned estate will not be optimally effective if you neglect to structure the ownership of your assets in the way that will take advantage of the estate planning you have put in place. For example, in order to maximize your estate tax and generation-skipping transfer tax benefits, it might be advisable to split the ownership of jointly held assets into individual names or into each spouse’s revocable trust. 

Consider whether to fund your revocable trust.

Probate avoidance is a primary driver for funding a revocable trust during lifetime. While probate fees in Massachusetts are not determined by the size of your probate estate, funding your revocable trust prior to death will significantly simplify and expedite the estate administration process. In addition, assets transferred into your revocable trust prior to death remain private, whereas probate records and the assets subject to probate become part of the public record.

Periodically reviewing your estate plan documents and your assets will help you develop and maintain the best estate plan for your particular situation.
The importance of choosing the “right” guardian for your minor children
When creating an estate plan, the primary emphasis is typically on the disposition of assets and the related tax concerns; however, one of the most crucial planning decisions you can make is choosing who will serve as guardian of your minor children.

The choice of guardian will not only set the course for the rest of several people’s lives, but also will contribute to the essence of who the minor children become. Furthermore, the failure to designate a guardian in your estate plan can put the lives of your children in the hands of the court system.

The guardian you designate will become a new parental figure for your children in the event that you are no longer able to care for them. Most importantly, the guardian will be charged with the responsibility of helping your children transition to life without one or both of their parents, and for passing on life skills, instilling values, and raising your children. Thus, it is paramount to select a guardian who understands the responsibilities accompanying the guardianship designation, and who has the time and interest to raise your children.

Choosing a guardian is no easy task, and involves objective and subjective assessments distinct from selecting other fiduciaries in your estate planning.

The first threshold to choosing a guardian involves finding someone who is willing to take on such an important job. The decision to serve as guardian for someone else’s minor children should be thoughtfully considered, as stepping into the role as surrogate parent will change the rest of the guardian’s life. A guardian without the proper understanding of the role he or she is to play for your children can result in significant legal and emotional problems for all interested parties, including your children and the guardian.

In addition to finding a person who is willing and able to take on the role of guardian, it is of utmost importance to choose someone who already has an established warm and loving relationship with your child. This type of existing relationship can be immensely valuable in such an emotionally trying transition for your children, as they cope with the trauma or sudden death of one or both of their parents.

Most people instinctively think that the “right” guardian for their minor children is a relative; however, in some circumstances, a non-family member may be a better fit. Choosing a family member as guardian may be the obvious choice, but if your children are uncomfortable, have never met, or rarely spend time with the family member, it may not be the right choice to name him or her as guardian. Rather, it may be the case that a close friend or neighbor who is present in your children’s lives and better understands your values in raising your children may be the “right” choice. Ultimately, the choice of whether or not to name a family member versus a non-family member is specific to your family dynamic and lifestyle.

Another important factor to consider when choosing a guardian is the individual’s job situation and financial stability, as adding surrogate children into their life will raise his or her living costs exponentially. You must balance the person’s willingness to take on the significant responsibility of raising your children with their ability to support your children financially in their future endeavors. Ultimately, if you think someone is the “right” guardian but are worried about the stress added children will have on their finances, you may consider designating them as beneficiaries in other areas of your estate plan to ensure they have enough money to raise your children according to your values.

Finally, you may be tempted to choose a couple as the co-guardians of your minor children in hopes that they will be raised in a traditional nuclear family setting. Unfortunately, designating a couple as co-guardians may be problematic in the event that they divorce or the preferred guardian in the couple dies or is otherwise no longer able to serve in the role. As a result, it is often preferable to name one or more alternates in case the first choice for guardian is unavailable to ensure your wishes can be carried out and your children’s lives are not at the discretion of a judge.

Once you have carefully considered the foregoing factors and designated a guardian in your estate plan, it is just as important to remember to revisit your choice as circumstances change to adapt to the needs of your children and abilities of your selected guardians. These choices should be revisited at least every five years to confirm that your chosen guardian is still the “right” choice for your children.
Incapacity: A good reason to fund your trust and name a power of attorney and health care proxy
Some of the most problematic work we do is for families who are caring for an incompetent person. Many would benefit from being moved to an institutional setting, but cannot assent to be moved and do not have a health care proxy or durable power of attorney in place.

In some cases, the situation is also complicated because of the way the person’s assets are held. For example, complexities can arise if the individual owns real estate but is not competent to sign a deed to sell it, or if the individual has a solely owned financial account that holds the funds needed to pay for care but is not competent to write checks.

What incapacity planning can one do?

In so many cases, situations like the ones mentioned above can be avoided. If the incapacitated person had transferred assets into a trust with proper trustee provisions, named an agent in a durable power of attorney, and named a health care proxy, the medical, financial, and legal aspects of care would be far less burdensome.

What happens when there is not incapacity planning?

If a person has become incompetent due to dementia, other incapacity, or an accident, the person’s care needs can be staggering. If the person’s financial assets cannot be easily reached by a trustee or agent under a durable power of attorney to pay for the care, and if the person has not named a health care proxy to make medical and living decisions, the only recourse may be a guardianship or conservatorship action in the Probate Court.

Court proceedings are slow and expensive. Additionally, state law may require that the court appoint a lawyer for the incapacitated person or an independent lawyer to serve in the role of an advisor to the court. These professionals are generally paid with assets of the incapacitated person, causing another drain on family finances.

The lawyer for the incapacitated person may not see eye-to-eye with the family about the kind of care that should be provided to the person or who should pay the care bills, causing additional emotional stress. In addition to the sadness and stress of caring for an incapacitated family member, the family may suffer additional emotional and financial stress arising from the court proceedings.
Traditional IRA beneficiary designations and implications
The distribution of your Individual Retirement Account (“IRA”) assets upon your death depends on whom you have named as a beneficiary.

For purposes of this blog entry, the discussion below assumes the IRA owner died after reaching age 70 ½.

When a spouse is named beneficiary

Naming one’s spouse as the beneficiary of an IRA provides many options and flexibility for the surviving spouse. A spouse is the only beneficiary who can choose to rollover the decedent’s IRA and treat the IRA as his or her own, which means the spouse can delay taking required minimum distributions (“RMDs”) until he or she reaches age 70 ½. The beneficiary spouse can also choose to establish an inherited IRA, which requires him or her to start taking RMDs in the year following the death of the IRA owner, but the RMDs are calculated according to the surviving spouse’s age/life expectancy. The surviving spouse can always take a lump-sum distribution, although this will cause the entirety of the distribution to be subject to income tax in the year in which such withdrawal occurs.

When a non-spouse is named beneficiary

A non-spouse beneficiary can either take a lump sum distribution or open an inherited IRA using his or her life expectancy, as determined by his or her age in the year following the year of death of the IRA owner. If multiple beneficiaries are named, they must establish separate inherited IRA accounts by December 31 of the year following the year of death of the IRA owner. If the beneficiaries fail to establish separate accounts by that deadline, distributions to all of the beneficiaries will be based on the oldest beneficiary’s life expectancy.

When a charity is named beneficiary

If you are charitably inclined, naming the charity as beneficiary of a retirement account is tax efficient for both the donor and the donee. The charity pays no income taxes upon receipt of the IRA assets, and the IRA will qualify for a full charitable deduction in the IRA owner’s estate.

When a trust is named beneficiary

If the trust qualifies as a “look-through” trust, then the RMDs must be paid to the trust over the life expectancy of the oldest trust beneficiary. A “look-through” trust (1) must be valid under state law, (2) must be irrevocable upon the death of the IRA owner, (3) the individual beneficiaries of the trust must be identifiable and (4) trust documentation must be provided to the IRA custodian no later than October 31 of the year following the year of the IRA owner’s death. If there are several trust beneficiaries of varying ages, then the ability to maximize the deferral potential of the distributions from the IRA could be lost. It is important to note that it may be possible to “split” beneficiary accounts if the trust creates separate “subtrusts” for each trust beneficiary. If the trust is not a “look-through” trust, then the time period to pay out the IRA is within five (5) years following the year of the IRA owner’s death.

When an estate is named beneficiary

Generally speaking, since an “estate” is not an individual, an IRA that names the owner’s estate must be paid out within five (5) years following the year of the IRA owner’s death.
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