Estate PlanninG

Separate Accounts & Required Minimum Distribution Rules

/Contact-Us.aspxSeparate accounts can be established as separate trusts by the owner of the IRA or qualified plan – Retirement Plans -- or by the Retirement Plans beneficiary designation form.

But there is a difference in the treatment of the Required Minimum Distribution Rules [RMD] by the beneficiary that is dependent on how the designation is made.

Separate accounts are started when a trust has many beneficiaries with shares of income separated from the interests of other beneficiaries. These separate shares are treated as separate trusts. By having separate accounts, the tax earned by one beneficiary is not attributable to the other beneficiaries.

So when Retirement Plans are set up in separate accounts by December 31 st of the year following the plan participant's death, then each beneficiary can decide their own required minimum distribution date based on their own individual life expectancy.

The fractional or percentage portion each beneficiary receives has to be clear on the beneficiary designation form of the Retirement Plans.

Beneficiaries cannot use the separate accounts rules as to the trust's interest in the Retirement Plans. So when a trust is the designated beneficiary of Retirement Plans and is then divided into separate subtrusts for each beneficiary, the payout period would be determined by the life expectancy of the oldest beneficiary.

So if you want your beneficiaries to use their own life expectancy, make sure that the Retirement Plans designation form names the beneficiaries' separate trusts and that it is completed prior to your passing.

California Estate Planning Attorney San Ramon

At Santaella Legal Group, APC our legal team is experienced in handling estate planning, probate and business law matters. We can carefully evaluate your situation and determine whether probate or administration is necessary. We suggest you take advantage of a consultation where you can get answers to your questions. Please don't hesitate to contact a San Ramon estate planning, probate or business attorney at our firm by calling (888) 698-3951, or you can fill out our online case evaluation form.