This scenario has three parts to it that i would love to receive expert feedback on.

Part I

My new clients husband passed on 3-15-11. He was the owner of a government TSP plan worth approximately $121,000 that had the family trust listed as the beneficiary. Upon his death his wife requested a spousal rollover of his TSP plan into an IRA in her name. She was told that her only options were to either take the amount in cash with 20% withheld for taxes purposes or to open an inherited IRA. Question #1 – were these truly her only two options? If not, is their anything that can be done to reverse her decision to roll it over into an inherited IRA? If so, what are those steps?

Part II

My client opted to take a full trustee to trustee distribution into an inherited IRA titled “Client Family Trust, Trust B Sally Client , TTEE BENE of Joe Client”. Question #2 – was this account titled properly? If not, can she still retitle the account properly? She was then told that she would need to liquidate the entire account within a 5 year period. Question #3 – is there any reason why she could not choose to stretch her distributions out over her life expectancy? She has gone ahead and taken her first distribution from the account in November 2011 of $20,000. Question #4 – does this distribution create any issues?

Part III

Ideally the client would have liked to disclaim her entire interest in the TSP plan and have the proceeds go to her daughter. Question #5 – is there any reason why she could not have done this? In light of what has already played out are their steps that she could take to still accomplish this goal? If not, why not? If so, what steps would need to occur?

Responses are much appreciated, Ted