probated IRA payable to trust

Submitted by THOMAS LAWLER on Mon, 2019-11-25 18:19

IRA needed to be probated in CA since there were no designated beneficiaries. Probate was completed and the probated “pour-over” will directed that the estate be distributed to the decedent’s living trust. The two beneficiaries of the trust (children of the decedent) want to create inherited IRA’s for themselves. No inherited IRA was designated fbo of the estate and none has yet been designated fbo the trust. Not sure if the proceeds have been paid into the trust at this point. Would appreciate responses in light of either situation (proceeds paid into trust and proceeds not yet distributed from IRA). Thank you in advance.



Submitted by Alan - IRA critic on Tue, 2019-11-26 02:24

  • How old was the IRA owner at DOD? Are there remainder beneficiaries in the trust provisions? Do the trust provisions allow the trustee to distribute the inherited IRA out of the trust?  Note that if the IRA has been distributed to either the estate or the trust, whatever stretch that was available has been eliminated.
  • It appears that one serious mistake has already been made, not naming the trust as the beneficiary on the IRA agreement thereby leaving the estate as the beneficiary. That eliminates the trust from being qualified for look through treatment.
  • Further info pending the answers to above questions.

Submitted by THOMAS LAWLER on Wed, 2019-11-27 00:59

The IRA owner was about 85 at death.  Owner’s children were outright beneficiaries and if either had failed to survive him, the deceased child’s share would have gone to his or her then living issue upon the principle of representation.  Both children survived owner.  The owner had named his wife as the sole beneficiary and she predeceased him and no other beneficiaries had been designated.  The trust does direct that minimum distributions be made if an IRA is paid to the trust.  I am not sure if the IRA was paid to the trust at this time.

Submitted by Bruce Steiner on Tue, 2019-11-26 18:04

  • You can’t probate an IRA.  You can only probate a Will.
  • You should check the default provisions of the IRA agreement.  It’s possible that the default is the estate; it’s possible that the default is the spouse if any, otherwise the estate; and it’s possible that the default is the estate, otherwise the spouse, otherwise the issue.
  • Alan is correct that if the default is the estate then the stretch is limited.  In that case, you should yell and scream at whoever planned the estate.
  • If the IRA defaulted to the estate, then the executors will set up an inherited IRA for the estate and transfer it to an inherited IRA for the revocable trust.  The trustees of the revocable trust will transfer the inherited IRA to inherited IRAs for the beneficiaries of the revoacable trust.  As Alan pointed out, this won’t increase the stretch.
  • Why would anyone have an IRA go to an estate that’s payable to an administrative trust that’s then payable to or in trust for the children instead of simply leaving the IRA to the children or to trusts for the children’s benefit?
  • Bruce Steiner

Submitted by THOMAS LAWLER on Wed, 2019-11-27 01:13

As I mentioned in my response to Alan, the IRA designated the owner’s spouse as the sole beneficiary and did not name any contingent beneficiaries.  Since the wife predeceased the owner there was no living beneficiary for it to be distributed to and thus became subject to probate as it’s value exceeded $150,000, which is the limit for a small estate transfer in California.  So, the owner did not intend for it to be subject to a probate proceeding but simply failed to adequately designate beneficiaries to avoid that possiblity. If the probate is closed and an inherited IRA had not been set up for the estate, is it too late to do so for the trust?  Alternatively, do you believe it would be possible/necessary to go back to probate court for the purpose of designating setting up an inherited IRA fbo the estate as a prelude to setting up an inherited IRA fbo the trust and then subsequently setting up inherited IRAs for the children? 

Submitted by Bruce Steiner on Wed, 2019-11-27 15:27

  • It’s likely that, as you suggest, if there are no named contingent beneficiaries, the IRA defaults to the estate.  But you should double-check this with the IRA custodian.  Some IRA agreements provide that if there’s no named beneficiary and no surviving spouse, the IRA defaults to the issue.
  • If the IRA is payable to the estate, the executors will set up an inherited IRA and transfer it to the trustees of the revocable trust.  The trustees of the revocable trust will transfer it to the beneficiaries of the revocable trust, in this case presumably the children or trusts for the children under the revocable trust.
  • I don’t understand what you mean by “if the probate is closed.”  The Will may have been probated, but the estate is still open since it still has an asset, the IRA.  The executors have to transfer the IRA to the revocable trust.  To do so, the IRA custodian may require them to first set up an inherited IRA.
  • Whether any of this will require the involvement of the court will vary from state to state.  The lawyer handing the estate administration will know whether it does in this case.
  • Bruce Steiner

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