IRA annuity with estate as beneficiary

Submitted by Brent Miller on Tue, 2019-04-30 18:05

My father passed away at age 76 and one of his assets was an IRA annuity (strike 1!) To make it worse, he named his estate as the beneficiary of the IRA (strike 2!) His will has the typical A/B trust language with my mother as the beneficiary of the Trusts. The probate process is almost complete and the annuity company created an IRA in the name of the estate, which they currently hold. Should the money in the IRA annuity be moved to the Trust or can it go directly to my mother as an inherited IRA? Since my father had already started taking RMDs, will the future RMDs be based on my mother’s age if it goes to the Trust?



Submitted by Alan - IRA critic on Tue, 2019-04-30 18:40

  • What was father’s DOD?   Had he completed his RMD for that year from this or any other IRA accounts?
  • There was no mention of the trust as beneficiary of the IRA annuity, just the estate? This could be a problem.
  • Who is the executor of the will and the trustee of the trust? Is it a pour over will?
  • If the IRA properly goes to the trust, but the trust is not qualified for look through, then father’s remaining life expectancy will determine RMDs.
  • If the trust can be terminated by it’s terms or the trustee has discretion, if the sole trust beneficiary is your mother, she might able to do a rollover to her own IRA. This is easier if she is the trustee of the trust and sole beneficiary of the trust not counting purely successor beneficiaries.

Submitted by Brent Miller on Tue, 2019-04-30 20:11

His DOD was 1/21/19 and he taken his RMD for this year, the first week of 2019.  He took it from another IRA, which should have been enough to cover this IRA/annuity as well.  THe estate was the beneficiary of the IRA annuity, not a Trust.  He has an RLT, which was never funded, and the will is a pour-over into the Trusts created at his death per the  RLT.  I am his son and also the executor and Trustee.  The trust appears to meet all of the criteria to qualify as look through.  The Trust cannot be terminated by Trustee unless uneconomical.

Submitted by Alan - IRA critic on Tue, 2019-04-30 21:25

  • Unless there has been a recent IRS ruling, the failure to name the trust on the IRA agreement (including a testamentary trust which is what the A/B appears to be) will eliminate the trust or trusts from being a qualified trust for look through. As such the RMDs paid to the trust would be based on father’s remaining life expectancy. The first beneficiary divisor for 2020 would be based on father’s age as of his birthday in 2019 reduced by 1.0 for 2020 etc for 2021 and beyond. That might not be much shorter than Mom’s life expectancy if the trust had been qualified.
  • If the trust cannot be legally terminated, it’s a moot point whether you could assign the IRA out of the trust to Mom as beneficiary OR do a spousal rollover. The spousal rollover to her own IRA, if possible, would greatly reduce her RMDs and would also make the beneficiaries she names designated beneficiaries upon her passing. Otherwise, the RMD schedule based on Dad’s remaining life expectancy would have to continue along with a much shorter RMD distribution period. Conversely, retaining the trust as IRA beneficiary would likely provide creditor protection compared to what Mom would receive with an inherited IRA, but if Mom did the spousal rollover she would have better creditor protection in most states. In other words, if creditor protection is an issue here, an inherited IRA in Mom’s name is the worst option in most states.
  • With respect to RMDs, I’ll assume that the IRA annuity has NOT been annuitized as that would generate other complexities of insurance company limitations.

Submitted by Brent Miller on Tue, 2019-04-30 21:49

Thanks for your help!  I’ve been advised that a distribution on the full amount will have to be made and I will receive a 1099R, as executor.  Based on what you know, would it not be possible to move the money into the other IRA she received – beneficiary IRA?

Submitted by Alan - IRA critic on Tue, 2019-04-30 23:31

  • If a distribution is made from the current IRA it cannot be rolled over, except for the possibility of a spousal rollover for Mom. A non individual such as an estate or trust cannot rollover a distribution. The larger the amount of this distribution, the more damaging the loss of tax deferral is and the higher the tax bill due to the entire balance being taxable in a single year. 
  • That said, unless the insurance company IRA Annuity agreement specifically states that in the event of death of the IRA owner with an estate beneficiary a lump sum distribution will be made, the insurance company may be bluffing, since none of them really want to maintain inherited IRAs for an estate or trust. If you did not want to pursue a spousal rollover for Mom, you might resist the lump sum distribution. Check the IRA agreement and if this provision is not there, tell them you want to use the IRS allowed stretch provision using Dad’s remaining life expectancy, or assign the account to Mom as beneficiary so you can close the estate.
  • Re the spousal rollover, you also have to convince the new IRA custodian to accept a spousal rollover. Some may ask you to get your own IRS PLR, which would cost nearly 20k so you want to avoid that. Before pursuing a spousal rollover be sure Mom is the sole beneficiary of the estate and trust and has unlimited access to the funds. Otherwise, a spousal rollover could not be done. What is your best approach depends on how large the balance is for this IRA annuity.

Submitted by Brent Miller on Thu, 2019-05-02 12:54

I spoke with the annuity company and the told me to submit a withdrawal form before the estate closes and they will issue a check made payable to the Estate.  What do I do when I receive the proceeds once the estate closes?

Submitted by Alan - IRA critic on Thu, 2019-05-02 21:45

The only possible option to transferring the estate balance to the trust is the spousal rollover. The rollover will be a hassle and dependent on the differing policies of various IRA custodians. Some will not do it, some may want her to secure a letter ruling which takes a long time and costs nearly 20k, and some may accept a spousal rollover after reviewing the will and trust. Obviously, the simplest solution is to transfer the check into the trust. You will probably need a tax professional to file the 1041 for the estate or trust since the distribution will be taxable to one or the other.

Submitted by Bruce Steiner on Mon, 2019-05-06 00:00

  • She might be able to do a rollover of some or all of it by claiming her elective share.  See my articles on this in the September 1997 issue of Estate Planning, https://www.kkwc.com/wp-content/uploads/2015/04/AR20050125164755.pdf , and the June 2015 issue of Trusts & Estates, https://www.kkwc.com/wp-content/uploads/2015/08/IRA-Rollovers-Making-this-option-possible.pdf .
  • Bruce Steiner

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