Family Trust as Roth IRA Beneficiary

Submitted by Jonathan Sard on Thu, 2024-06-06 18:52

My 57 year old client inherited a Roth IRA from his 85 year old father and their Family Trust was named beneficiary. Fidelity allowed the trustee of the Family Trust, my client, to send a letter authorizing the Roth IRA be split into two inherited Roth IRAs but still showing the Family Trust in the title. Do you know if Fidelity, or any other custodian, will issue a distribution check payable to my client or will it be payable to the trust to whereby he would need to deposit the proceeds into a Family Trust checking account and then withdraw the money from the Family Trust checking account? Also, would the 1099 have my client’s social security number of the tax ID for the trust? We are trying to figure out how the tax documents will be sent. The client is fine withdrawing all the money from the Roth as the balance is under 10k and his dad had the Roth open for more than 5 years. THANK YOU!!



Submitted by Alan - IRA critic on Thu, 2024-06-06 19:52

I don’t know why Fidelity would allow two inherited trust IRA accounts to be established unless the trust provisions  specified that the trust be split into sub trusts. Are there two EINs? If so, there would be two 1099R forms issued, otherwise just one.

If the Roth will be distributed soon, it does not matter if the trust is not qualified and the Roth falls under the 5 year rule. But the Roth IRA is qualified and distributions are non taxable.

Are there other assets in the trust?

Submitted by Jonathan Sard on Thu, 2024-06-06 21:13

It looks like each Inherited Roth is tied to each person’s social security number. The only assets in the trust (outside of the Roth IRA) is roughly $250 that they are waiting to distribute to the two beneficiaries.

Submitted by Alan - IRA critic on Thu, 2024-06-06 23:39

Sounds like the trustee of the trust via the letter has assigned the Roth IRA out of the trust to individual beneficiary Roth IRA accounts under the respective SSNs, and Fidelity has complied. Each beneficiary could decide separately whether to take a full distribution or stretch it for the allowed period and any distribution should be reported to the individual under their SSN. It does not matter whether the inherited IRA registrations show the father or the trust as the entity from which each individual inherited the Roth. When the final 250 is distributed from the trust, the trust will terminate.

Submitted by Jonathan Sard on Fri, 2024-06-07 13:19

Would the distribution check be payable to the individual beneficiary of the Roth IRA or to the trust? I ask because if the check is payable to the trust then how would each beneficiary cash the check?

Submitted by Alan - IRA critic on Fri, 2024-06-07 14:08

If the Roth was assigned out of the trust to separate inherited IRAs, the check should be made out to the individual beneficiaries whose SSNs show on the account.

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