Late nonspousal distribution
Client, trustee of a trust recently found out they were a beneficiary to an IRA, Nonspouse beneficiary. The decedent passed away in 2014, but the trustee fot the trust just found out about the IRA inheritance.
Investment company retirement services department advised trustee their only option was a lump-sum distribution in lieu of extending the distributions over the life of the beneficiary of the trust, since December 31 of the year after the owner of the IRA has passed and no option was selected by December 31.
Is this correct? The annual distributions of the trust to the beneficiary are restricted. A lump-sum distribution will be very costly.
Has anyone had experience in this area?
If an option other than lump sum remains, is their a revenue ruling, regulation or private letter ruling to inform the retirement services.
Thank you.
Scott
Permalink Submitted by Bruce Steiner on Tue, 2016-07-26 15:14
See PLR 200811028: https://www.irs.gov/pub/irs-wd/0811028.pdf.
Permalink Submitted by Alan - IRA critic on Tue, 2016-07-26 17:21
Bruce, what about the deadline to provide the trust information to the IRA custodian as required for the trust to be qualified? While IRA would have LE as default, if trust not qualified the LE would be impaired. Is there another ruling somewhere that provides any deadline relief in this case? Obviously, if trust is not qualified and IRA owned passed prior to RBD, then the 5 year rule applies. I think if trust can get past qualification hurdle, the trustee could also request Form 5329 waiver of the 50% excess accumulation penalty for the delinquent RMD years, which applicant in 2008-11028 had to pay.
Permalink Submitted by [email protected] on Tue, 2016-07-26 17:32
one of the requirements for a trust to “qualify” as a see through trust is that the trust documents be delivered to the custodian in a timely manner. If this didn’t happen, is it possible that the trust then “failed” to qualify, and there was no designated beneficiary, so the custodian is in their right to require a distribution?
Permalink Submitted by Alan - IRA critic on Tue, 2016-07-26 18:26
Even if the 5 year rule applied, the IRA Custodian has no authority to require an immediate lump sum distribution unless their IRA agreement so specifies. Most of them do not, and these custodians just want the IRA drained before beneficiaries discover they have better options or worse yet, they end up with multiple TINs and separate accounting shares to track, or an estate driven dispute where the courts get involved.
Permalink Submitted by Scott Libman on Thu, 2016-07-28 05:26
Thank you for everyone’s reply. Very helpful.