IRA left to joint revocable trust between spouses
I’ve been knocking this around in my head for the last 24 hours, and I can’t seem to land on solid ground.
Husband & Wife write joint revocable living trust together. At the time of drafting, they are sole co-trustees. Trust language says that when one spouse dies, the trust retains revocable grantor status and the surviving spouse becomes sole trustee.
H dies, and leaves his IRA to this trust. Shortly thereafter, W resigns as trustee and names the couple’s son as sole trustee. W also wants to keep this trust listed as the IRA bene vs. assuming in her own name.
Given that the trust is revocable, can it qualify for “see-though” treatment that would allow a stretch based on W’s life expectancy as an EDB?
I know there are PLRs out there that would support the spousal assumption (though I wonder if Son as sole trustee messes with that), but in any case, we’d have to retitle the IRS in W’s own name, not the trust, and for some reason (heretofore not explained to me), W doesn’t want to do that.
So, again, trust listed as bene, it’s not irrevocable (so fails as a qualified trust for see-through treatment – maybe?), but W doesn’t want to retitle into her name, either as an assumption or a stretch IRA.
Are we stuck with 5-year as our only distribution option?
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-09 04:00
Yes, the 5 year rule applies if IRA is left to NQ trust if IRA owner passes prior to RBD. If owner passes post RBD, then the trust may take distributions over the remaining single life expectancy of deceased owner.
Permalink Submitted by Robert Vashko on Wed, 2022-03-09 15:34
Thanks, Alan. Do you agree with how I am breaking this down? If W insists on keeping the (rev grantor) trust listed as the bene of the IRA, and refuses to perform any kind of assumption/retitling, we have no see-through option and are left with no choice but 5-year.
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-09 16:24
I think it goes further than that. To be qualified, the trust must be irrevocable or become irrevocable upon the IRA owner’s death by it’s terms, and the surviving spouse cannot have discretion to override that or the trust would fail qualification. However, even if the trust meets all qualification requirements, there have been PLRs that allow the surviving trust spousal beneficiary to do a spousal rollover.
Permalink Submitted by Robert Vashko on Wed, 2022-03-09 17:52
Thank you!