IRA to Estate; Will Creates Supplemental Needs Trust
Widowed decedent dies in 2020 at age 82. RMDs had begun. Let’s assume 2020 RMD was taken before death.
No beneficiary named. Presumably estate was default beneficiary. Custodian transfers IRA to inherited IRA for estate.
The 3 Will beneficiaries are to share in the estate equally. But one of those beneficiaries, who is disabled, is to receive her 1/3 in a supplemental needs trust, created under the Will.
Nevertheless, on assigning the IRA to the beneficiaries, inherited IRAs are created for each individual beneficiary. That is, an inherited IRA is created for the disabled beneficiary, not for the disabled beneficiary’s trust. No RMDs are taken by any of the beneficiaries through 2024.
I think I understand the treatment up to this point: A non-person beneficiary (the estate) of a decedent who died after RBD takes RMDs over the remaining life expectancy of the decedent. So the beneficiaries have missed 4 years of RMDs. Because the beneficiaries are subject to the ghost rule rather than the the 10 year rule, the IRS Notices providing relief for missed RMDs through 2024 are not applicable. Maybe there are some reasonable cause arguments to explore.
But now another wrinkle. Probate is reopened in 2024 to address the failed creation of the supplemental needs trust. That trust has now been created (and partially funded with the other estate assets) and the executor wants to transfer the disabled beneficiary’s inherited IRA to an inherited IRA for the trust. [Or perhaps better stated: the executor wants the custodian, essentially, to correct would should have happened initally; that is, from estate inherited IRA to beneficiary trust inherited IRA.] Is this possible? What would the process entail?
More broadly, does it change anything in the above analysis? I don’t see any way the trust can qualify as a see-through trust for RMD purposes given the estate was the beneficiary, but would love to be corrected. Want to make sure we’re considering all options.
Permalink Submitted by Alan - IRA critic on Tue, 2025-06-17 23:30
You are spot on with respect to the two non SNT beneficiaries.
As for the testamentary SNT beneficiary, the SNT could still be treated as an EDB see through, but ONLY if the beneficiary clause on the IRA specifically named the SNT, eg “supplementary needs trust for (name) created under my will”. So that’s the first hurdle.
But I suspect it was not specified except in the will itself, otherwise the IRA custodian would have known about this and would not have established an inherited IRA for other than the SNT after it was created.
It may be possible to transfer the inherited IRA into an SNT inherited IRA if the custodian will cooperate. But because the SNT would not be qualified for look through, the inherited IRA RMDs to the SNT would have to continue to be based on the ghost LE, which would end in 2029.
Nonetheless, this would be beneficial if it would reverse the loss of govt benefits or even better if these benefits have not already been impaired.
Permalink Submitted by Tim Greevley on Tue, 2025-06-17 23:48
Thank you Alan for the response.
Unfortunately, your intuition about the IRA clause lacking a reference to the trust is correct. No luck there. And while the will does create the SNT and direct the disabled beneficiary’s share of the residue to the SNT, there is no language specifically tying the IRA (or any other assets) to the SNT. Why the custodian ended up transferring that beneficiary’s share to her individually, rather than to the SNT for her benefit, is something I’m still trying to put together.
The executor has raised the issue of transferring the inherited IRA into an SNT inherited IRA with the custodian. Hopefully the custodian is willing to play ball. As you note, the goal at this stage is at least to protect any government benefits.
I appreciate your time and help on this!
Permalink Submitted by Alan - IRA critic on Wed, 2025-06-18 10:18
Sounds like the executor made the error in assigning the IRA out of the estate, but if the executor submits a copy of the will relating to the SNT, the custodian may cooperate and retitle the inherited IRA to the SNT. This should not produce a 1099R. Of course, if the flawed assignment out of the estate was done years ago, the custodian will be less likely to cooperate unless overlooking the SNT was their own error and not the executor’s. This request should be carefully submitted to senior staff if the custodian has a dedicated estate Dept.
Another issue is that none of the beneficiary RMDs were waived for any of the beneficiaries, so the missed RMDs using the ghost LE should be made up and a 5329 and 1040X filed for 2021-2024 requesting that the penalty be waived for reasonable cause. The IRS has still been approving these full waiver requests, despite the recent reduction of the penalty to 25% or 10%.