tblaufussParticipantStatus: PhysicianPosts: 2Joined: 10/15/2017
I had an interesting question by my significant other and I am not the most sure how they can do this. Her uncle is currently allocating his assets so his 4 grandchildren can split his traditional IRA when they are all older [20 years from now]. The uncle wants this money to only go to his grandchildren, but would also like his 3 nieces to be able to utilize this money during that 20 year time frame for very low interest loans. He wants his brother and 3 nieces to control the assets.
Now I was thinking of them starting a trust for each of the grandchildren before he passes away, which he is currently in hospice. Now I think the loan aspect complicants this process but I may not be. So my questions would be, can this even be done? Should the money be assessed now or after he passes away for tax purposes? The family was thinking just keeping it in high interest savings accounts but I don’t know if best option. Is a trust the best way to set this up?
Thanks all for your input. Long time reader and follower so thought you all could helpDecember 28, 2018 at 9:41 am MST #176845PedsParticipantStatus: PhysicianPosts: 3594Joined: 01/08/2016
i dont know how you are going to loan money out of an IRA let alone to people that arnt the beneficiaryDecember 28, 2018 at 9:44 am MST #176849jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7307Joined: 01/09/2016
Welcome to the forum. IRA ownership cannot be gifted. It can be transferred in only 2 ways during the owner’s lifetime:
- Through a divorce via a QDRO
- At death to your beneficiaries
Otherwise, the owner must take distributions from the account, pay the taxes, and make direct gifts to the person/institution of choice.
An exception would be if you live in a state that does not have protections in place for IRA ownership. However, losing your IRA in bankruptcy would not be considered a gift?.
Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
https://fox-cpas.com/for-doctors-only/spiritriderParticipantStatus: Small Business OwnerPosts: 1702Joined: 02/01/2016
A couple of additional points. Loans are not allowed from IRAs and using an IRA for collateral is a prohibited transaction resulting in immediate forced distribution of the IRA with the full amount of the distribution subject to ordinary income taxes in the year of distribution.
Also, if a trust is set up with the nieces and grandchildren as beneficiaries, the RMD divisor would be based on the oldest beneficiary. This would result in a greatly accelerated RMD schedule.
A better option would be to set up two trusts with the nieces named in one and the grandchildren in the other. Then name the two trusts as beneficiaries in a proportion that makes sense.
This is not a DIY endeavour. An estate lawyer should be contacted.