By Andy Ives, CFP®, AIF®
Under the SECURE Act, if we can assume a Special Needs Trust can qualify for the stretch via the disabled beneficiary, what happens when the special needs trust beneficiary passes? The next named beneficiary (remainder) is a brother and/or nephew under this trust. Yet it’s already an inherited IRA. Would that formula continue to the next remainder beneficiary in line, i.e., would the stretch continue?
The SECURE Act left many questions unanswered, especially when it comes to trust beneficiaries, but your situation may have an answer. You are correct that, under the new law, there are special rules for a trust for disabled or chronically ill beneficiaries that allow RMDs to be paid from the IRA to the trust using the beneficiary’s life expectancy. For these beneficiaries, the SECURE Act includes a provision allowing for “applicable multi-beneficiary trusts.” One of the ways to qualify as an “applicable multi-beneficiary trust” is to provide that no beneficiary, other than an eligible designated beneficiary, has any right to the IRA funds until the death of the eligible designated beneficiary. In your situation, assuming none of the remainder beneficiaries are disabled or chronically ill, upon the death of the disabled beneficiary, the remainder beneficiaries will be subject to the 10-year payout rule. There is no continuation of the original stretch. However, if any of the remainder beneficiaries are disabled or chronically ill, the SECURE Act does not tell us how payouts will be treated. Future IRS guidance will be needed.
If a person takes a $100k distribution, can they elect to split it evenly in 2020-2022 as income? Or can they determine how to apply the income?
I believe you are referring to a Coronavirus-Related Distribution (CRD) created under the CARES Act. Assuming a person qualifies for a CRD and takes the maximum $100,000, the income from that distribution can all be applied to 2020, or it can be spread evenly over the three years (2020 – 2022). There is currently no option to divide up the income in any other manner.