Is the undistributed income of an IRA Trust taxable to the beneficiary?

ira-inheritance-trust-qQ: If an adult child is trustee of his own IRA Trust and it is an accumulation trust and he has the power to distribute all income to himself, is any undistributed income taxable to him anyway?

A: Undistributed income is only taxed to a beneficiary if the trust requires all income must be paid out currently or the beneficiary has an unrestricted withdrawal right (for example, not subject to HEMS standard). An accumulation trust would never be designed to have either provision, because these provisions would virtually eliminate any asset protection, which is the primary reason for an accumulation trust. If a conduit trust is used, this does require all IRA distribution to be paid out to the beneficiary and thus they are taxed to the beneficiary.


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