Good afternoon everyone,
We were just retained on an estate. Decedent’s son came in and reported that his father had approximately eight retirement accounts (IRA’s, TSA’s, 401k’s) of which he was named beneficiary on some alone, some with his sister and his sister named alone on the others. Both brother and sister are adults. Sister is high functioning and legally makes decisions for herself. In going through the documents provided, I came across an irrevocable trust, created by the sister following dad’s death, in which she irrevocably assigns her interest in her share of all the retirement plans, retaining a lifetime of income solely to herself, with powers to distribute principal in accordance with ascertainable standards. She named herself, her brother and step-father as co-trustees. The attorney explained the reason for the trust was to protect her from undue influence of her friends and the daughter was in full agreement. The probate attorney said they never gave tax ramifications any thought in the process of drafting the trust.
Now, the question is does this assignment trigger immediate taxation of her entire share of the retirement plans? I looked in Natalie Choate’s book and found assignment to creditors does trigger recognition (at least to the extent of the debt). However, I couldn’t nail down whether the irrevocable assignment to the trust will forfeit her ability to use an inherited IRA to stagger the income recognition. I am thinking this trust will qualify for grantor trust status under the income tax laws because of her retained right to all income and the power to distribute principal (albeit limited to ascertainable standards and subject to agreement of her co-trustees). If it constitutes a disregarded entity, then possibly she just sets up her inherited IRA and contributes the net after tax proceeds annually to the trust.
Any thoughts or direction would be welcome.
Having a great time in Fresno,
Bob

Robert F. Price, CPA, MST, AEP
Price, Paige & Company
677 Scott Avenue
Clovis, CA 93612
(559) 299-9540 ext. 112
Fax (559) 299-2344
[email protected]
http://www.ppcpas.com