Revocable trust named as beneficiary

Submitted by Mike Janky on Tue, 2023-03-21 23:21

Trying to help a new client I recently met with. Sally is 68 years old and her husband Rick passed away in January of 2023. He was 73 and had already taken his RMD’s for 2023. He had 8 different IRA’s in deferred fixed annuities and named Sally as primary beneficary on all of his IRA’s except one. For that IRA, he named their family revocable trust which Sally is primary beneficiary of. The trust appears to quailfy as a see-through trust. We have contacted the custodian of the IRA and they have verified the trust is the beneficiary and the funds must be paid to the trust in either a lump-some or 5 to 10 year payout. My question is if she has the custodian pay the trust the lump some ($300K), can she turn around and do a spousal continuation with this money? I did find a PLR of a situation just like this that allowed the spouse to take the payout once the trust received it and then create her own IRA and funded it therefore not incurring a big tax bill and continuing the IRA as if it were her own originally. This PLR is about 8 years ago. What is your take on this? We are trying to avoid the $300K being taxed and to create her own IRA with this money.
Second question but same client, Rick had 7 different IRA’s naming her as primary beneficiary. I know she can do a spousal continuation on these but is also interested in trying to consolidate all his and her IRA’s. She has 8 herself. Is she allowed to take the death benefit paid to her on these IRA annuities and then create one IRA and fund it with the death payouts of his IRA’s? I’m concerned this would be a problem with the one roll-over per 12 months rule but didn’s know since these are death proceeds if that changes anything. Thank you for your help!



Submitted by Alan - IRA critic on Wed, 2023-03-22 00:37

  • FIrst issue – there are too many variables in past PLRs to be predictive of what resistance the trustee of the trust might encounter in attempting either a spousal rollover or in assigning the inherited IRA annuity out of the trust to the trust beneficiary. Most likely an insurance company custodian will be more difficult to deal with than a large brokerage firm with respect to acceptance of past PLRs or analyzing the trust beneficiary provisions. They are likely to request a specific PLR application, and these are time consuming and costly, most likely between 20 and 25k with an uncertain outcome and time frame. It would be much safer to attempt to convince the insurance company to accept assignment out of the trust if the trust provisions so permit because if they refuse at least there has been no distribution and 60 day rollover clock running as well as exposure to the one rollover limitation, and the other options are still on the table to fall back on to take a large taxable distribution out of play. Following is an extensive article on the subject, but the underlying circumstances vary considerably.
  • IRA-Rollovers-Making-this-option-possible.pdf (kkwc.com)
  • For second question, again the one rollover limit eliminates spousal rollovers other than by election to assume ownership and then move them by direct non reportable transfers. Perhaps the default rule for failing to take a beneficiary RMD in full resulting in default ownership would work if an insurer otherwise refuses election of ownership. As an EDB, with death post RBD, the first beneficiary RMD would be required and delinquent if not taken by 12/31/2024. However, because the one rollover limit applies to each distribution, consolidating these 7 accounts by anything but direct transfer is problematic. If some of these are with a single company, perhaps that company could directly transfer accounts into a single account with them. In short, inheriting IRA annuities can be a real problem.


Submitted by Bruce Steiner on Sat, 2023-04-08 21:15

Alan:  that’s my article.  Thanks for posting it.



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