IRA owner’s revocable trust as IRA beneficiary

Submitted by Arthur Dicker on Wed, 2018-07-04 02:39

IRA owner “Jim Jones” died naming his revocable trust as sole beneficiary of his IRA. Of course upon his death the revocable trust became irrevocable and directs that his IRA should be divided into 5 equal shares with one share each going to five separate trusts fbo his children.

Questions:
1. If the custodian (Fidelity) permits it, can the inherited IRA go directly from Jim’s IRA to the five new beneficiary IRAs, or must it be a two-step process, first from Jim’s IRA to inherited IRA fbo Jim’s trust, then to five new beneficiary IRAs?

2. What is the correct title for each new beneficiary IRA? For example, if beneficiary is John Smith Trust, “Jim Jones deceased IRA fbo John Smith Trust”?

3. Finally, if the custodian of the inherited IRA is the same (Fidelity), what code(s) appears on the 1099-R to show that the transfer is not a taxable event?



Submitted by Alan - IRA critic on Wed, 2018-07-04 20:16

  1. The IRA should not simply name the RLT, but rather  “sub trusts for my children created under Article “X” of the Jim Jones RLT”. The inherited IRA can then be assigned directly to these sub trusts.
  2. Each beneficiary account can be titled in a format acceptable to the custodian such as “Jane Jones trust as beneficiary of Jim Jones”.
  3. 1099R code will always be 4  (death benefit) for all distributions, however the transfer to the sub trusts is not reportable on a 1099R since it is not a distribution. However, a 5498 should be issued to the beneficiary and decedent (showing DOD value for decedent)  and IRS showing the year end value of the inherited IRA for beneficiaries.

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