Revocable Family Trust as IRA beneficiary
Our 89-year old client died August 2012. Her IRA named her revocable living trust as the beneficiary of her IRA. Her three adult children are named in the trust as the beneficiaries of her revocable living trust.
Pershing, the custodian, has said that the 3 heirs cannot stretch the IRA. Pershing said that the trust will be the owner of the IRA and that the trustee will remain in charge of the IRA until it is completely distributed.
We had a similar situation a few years ago but the custodian was Vanguard who allowed us to eventually open 3 separate BDA IRAs for the beneficiaries who then were able to stretch the IRAs.
Pershing said they have never heard of situation where the trust beneficiaries can stretch the IRAs.
Was there a change in the rules since Vanguard allowed beneficiaries to stretch the IRAs?
If Pershing isn’t correct, is it possible to transfer an IRA after the owner’s death?
Permalink Submitted by Alan Spross on Sat, 2012-09-08 01:03
I think you are talking to the wrong people at Pershing and need to elevate the discussion to higher ranks. They are a very large firm and certainly have people there that understand the rules. Nothing has changed since VG handled your prior client. That said, the IRA can always be transferred to a different custodian if need be.
While it is not clear that this trust is qualified (see Pub 590, p 36), most trusts are but the trustee has a deadline to supply documentation to the IRA custodian. Once the trust is considered “qualified”, the RMD is determined by the oldest trust beneficiary including remainder beneficiaries. The separate account rules do not apply to trust beneficiaries, but if the trust is allowed to terminate, the IRA can be assigned to the individual beneficiaries who will then have control of their own inherited IRA accounts. The RMD divisors are baked in however and assignment will not change their RMDs.
Here is an article by Natalie Choate, a noted retirement plans authority. Links include sample letters to IRA custodians:
http://www.ataxplan.com/bulletinBoard/ira_providers.cfm
Permalink Submitted by Bruce Steiner on Sun, 2012-09-09 02:56
The trustees can distribute the IRA in kind, but whether the beneficiaries can use their life expectancies (or the oldest one’s life expectancy) depends on the terms of the trust.
Why would anyone create a trust to receive the IRA only to have the trust terminate upon the IRA owner’s death. If the amount involved is sufficient to warrant administering trusts, we would leave the IRA to the beneficiaries in separate trusts for their benefit. If not, we would leave the IRA to the beneficiaries directly.
While revocable trusts can be useful in a small minority of cases, and in some states, they are overhyped and oversold, and for most people they are unnecessary and serve to create distraction and complexity.