Inherited IRAs with both and estate and trust as beneficiaries

Submitted by Robert Roselli on Wed, 2021-08-18 14:03

I have a client who passed away last year. He had a large IRA that he designated his living trust as beneficiary. Also, he had IRAs with another custodian that nobody knew about. He had no living beneficiaries at death, so the beneficiary for that IRA is his estate. So here I am with an Inherited IRA with a trust beneficiary and and IRA with the descendant’s estate as beneficiary.

The attorney claims that estate flows into the trust and I can combine the IRAs. I tend to think not. We have three beneficiaries that are getting EIN numbers for their shares. We already know that we have to break up the Inherited IRA (trust beneficiary) into three shares. I think we have to do the same with the Inherited IRA (estate beneficiary) and we can’t move that into his trust. The distribution timetable is 5 years for Inherited IRAs for estates. I can’t imagine the IRS will be ok with that.

Can you please advise on whether we need to break both Inh IRAs into three share or whether I can combine the Inh IRAs?
I greatly appreciate the feedback.



Submitted by Alan - IRA critic on Wed, 2021-08-18 17:31

The following link includes an extensive discussion on the effects of relying on a pour over will to move an IRA into a trust, but it does not work if the trust is not named as the beneficiary on an IRA. Perhaps the attorney thought it would.
IRA payable to an Estate with a pour over will to a trust. Can they become inherited IRA’s. | Ed Slott and Company, LLC (irahelp.com)
Note that the above thread dealt with just one IRA. Here there is an IRA with a trust beneficiary named and another one payable to the estate. So the question now is what effect does this have on the IRA with the trust named as beneficiary. Do the trust beneficiaries distribute both IRAs under the 5 year rule, or does the IRA naming the trust still qualified, and the 10 year rule applies to those trust beneficiaries.
If the applicable RMD distribution period differs, inherited IRAs should not be combined. If they are presumably the most restrictive distribution provisions would apply.
Perhaps Bruce Steiner will see this thread and comment. There might be state specific statutes at work here as well.

Submitted by Robert Roselli on Wed, 2021-08-18 18:52

Thanks Alan. In this case, the decedant named his trust as a beneficiary of a large IRA. He had this somewhat small IRA that he never told us about. He had his wife as beneficiary, but she predeceased him, so he never updatedthe beneficiaries after she died. Based on your comments, it seems nearly 100% likely they should be kept seperate. Hopefully, Bruce will add his comments, 

Submitted by Bruce Steiner on Fri, 2021-08-20 12:53

As Alan pointed out, the distribution rules are different.  So they would have to keep them separate.
As I asked in the other thread to which Alan referred, why would anyone create such a complicated plan, leaving an IRA to an estate which goes to a revocable trust which is then divided into separate trusts?  The IRA owner could have simply left the IRAs to the separate trusts.
  

Add new comment

Log in or register to post comments