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If a trust is a Qualified Retirement Benefits Trust is a…

If a trust is a...
If a trust is a Qualified Retirement Benefits Trust is a form 1041 required to be filed? The trust started from parent retirement plan, placed in trust. Now RMD is ongoing, but is a 1041 required?
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Answered in 14 minutes by:
4/24/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,195
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name's Lane.

...

A retirement plan cannot be placed in trust. Partly because retirement accounts ARE trusts (this is why we need an underlying bank or trust company for qualified plans).

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Trusts, however CAN be the beneficiary of a retirement account.

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And in this scenario, yes, there needs to be a 1041, because the trust becomes irrevocable a at the death of the grantor, and because the RMD is the trust's, as well (and must be reported on the 1041).

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Best practice then is to have the trust pass out the RMD to the beneficiary(ies) via the 1041's K-1, as (you may know this) trusts and estates reach the 39.6% bracket at a little over 12,000 of income, where individuals don't reach the 39.6% bracket until income reaches over 400,000.

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Based on what you said about RMD, this likely qualifies as a See-Through trust, which allows the oldest of the individual trust beneficiaries to be treated as if he or she were named directly.

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The inherited IRA can be stretched over that person’s life expectancy. If the trust does not qualify as a see-through trust, then the IRA will be treated as if there was no designated beneficiary and the post-death payout will not be based on a beneficiary’s life expectancy. It will be based on the rules that apply when there is no designated beneficiary for an IRA.

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To qualify as what the IRS refers to as a “see-through” or “look-through” trust for IRA distribution purposes, the

trust must meet the following requirements: (Regs §1.401(a)(9)-4, A-5)

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1.The trust is valid under state law.

2. The trust is irrevocable or it becomes irrevocable upon death.

3. The beneficiaries of the trust are identifiable.

4. The required trust documentation has been provided by the trustee of the trust to the IRA custodian (or plan administrator for a company plan) no later than October 31st of the year following the year of the IRA owner’s death

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It's being irrevocable, and having taxable income, is what triggers the need to file the 1041.

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The five year rule applies for trusts that were not carefully drafted as see-through trusts.

...

Please let me know if you have ANY questions at all, before rating me.

I hope you’ll rate me (using those stars, or faces on your screen, by clicking submit) based on thoroughness and accuracy, rather than any good news / bad news content.

Otherwise I’ll receive no compensation for the work here at all, from JustAnswer.

Thank you!

Lane

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance a BBA, and CFP& CRPS (Chartered Retirement Plans Specialist) designations,as well - I’ve been providing financial, Social Security/Medicare, estate,corporate, non-profit, and tax advice, to clients on three continents since1986.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,195
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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