If a trust is bene of IRA, does the IRA have to stay in it?
When naming a “typical” revocable living trust that qualifies as a see-through trust as the beneficiary of an IRA, where the trust terminates at the death of the grantor, is there anything in the tax code or other law(s) that would prohibit a trustee from transferring the IRA to the beneficiary as a decedent IRA? The trust does not restrict payments, withdrawals, etc. to the beneficiary in any way, however, the IRA custodian wants to keep the IRA in the trust. It seems to me that there should be no problem with moving the IRA outside of the trust based on current precedents that I am aware of, plus it is much easier to administer the IRA outside of the trust for the client and Financial Advisor.
Does anyone have any clarifying thoughts, or is it simply a matter of considering using an IRA custodian that is more flexible?
Permalink Submitted by Bruce Steiner on Thu, 2008-06-05 22:43
Depending upon the terms of the trust, it’s likely to be possible. But if the trust ends at the grantor’s death, with distribution to the beneficiaries outright, it makes no sense to leave the IRA to the revocable trust instead of simply leaving the IRA directly to the beneficiaries.
Our clients generally provide for their children in trust rather than outright, to protect the inheritances from their children’s potential creditors (including spouses), and to keep the inheritances out of the children’s estates for estate tax purposes. Your client may wish to consider that as well.
There isn’t a “typical” revocable trust. You can put in a revocable trust whatever dispositive provisions you would otherwise put in a Will.