Legal Question in Tax Law in Kansas

Re: taxable income for beneficiaries of IRA via Trust

The short answer is it all depends on what the terms of the trust say. Typically trust documents specify who is to pay the tax liability. If there is no mention in the trust, then state law will govern. This can result in a scenario where each beneficiary pays the allocable portion of the amount he or she received or if it is an irrevocable trust then the trust may in fact have to pay the taxes. But it is not always that easy as there are often other assets in the estate, which may or may not be included in the trust. In that case the state law will specify an order in which the assets are to be distributed and how taxes are allocated among the different asset classes.

Depending on the timing here and whether the payment was actually received, the personal representative may be able to make a post-mortem election to change the IRA beneficiary. In that case you may be able to continue to hold the IRA assets in the IRA for the benefit of the siblings. That could allow the IRA assets to continue to grow tax free until they are withdrawn by the beneficiaries at some future date. Although it sounds like it may be too late for this.

This is probably more than you ever wanted to know, but you could achieve the same result if the trust contained a MRD conduit provision. These provisions are relatively new, so it isn't likely that the trust contained such a provision. Perhaps it would be helpful if it did...

So review the trust document and then check with an attorney.

Good luck. Sorry for your loss.