Trust Received Distribution of All IRA Proceeds
Our client as trustee just received a sizable check payable to her mother’s trust for the balance of her mother’s IRA annuity. Our client and her brother are beneficiaries of this trust. The insurance company representative told them that they would need to set up individual IRAs so that the IRA funds could be rolled over into their individual beneficiary IRAs so that they could do stretch IRAs. It is our understanding that if the trust is the beneficiary of an IRA that the trust would receive the RMDs each year and distribute them to the beneficiaries. Distributing the entire IRA balance to the trust now would seem to destroy the ability of the beneficiaries to do the stretch IRA. Is there any way that the entire IRA balance can be distributed to the trust and the trust beneficiaries still get stretch IRA treatment?
Permalink Submitted by Alan - IRA critic on Thu, 2019-05-30 21:14
No, the distribution is taxable and no 60 day rollover is allowed. Why was a lump sum payment made, does the insurance company require it or was a distribution form signed in error?
Permalink Submitted by Bruce Steiner on Sat, 2019-06-01 11:39
Did the trust otherwise qualify for the stretch. If so, would the insurance company have allowed the trust to have set up an inherited IRA and transferred it to another financial institution? If so, the beneficiaries of the trust may wish to consult with counsel to see if they might have a claim against someone for the loss of the stretch.
Permalink Submitted by Brent P Stewart on Tue, 2019-06-04 13:46
Thank you both for your information. The client has not yet deposited the check. We will be meeting with her to discuss the situation and possibly return the check to the insurance company.