IRA transfer from estate, via pour-over will to trust, then to beneficiaries

Submitted by Edward Janecek on Sat, 2017-07-08 20:06

My aunt’s estate inherited her husbands’s IRA, from which RMDs had been paid before she inherited. The estate has a pour-over will to their joint trust, which is now irrevocable. The trust has three persons as sole beneficiaries, and is qualified. Can the IRA be transferred to the trust, and then transferred in specified proportions to the beneficiaries?

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Permalink Submitted by Alan - IRA critic on Sun, 2017-07-09 00:00

If her estate inherited the IRA, it can be transferred to the trust. The trustee of the trust must adhere to the trust provisions regarding distribution of trust assets. Meanwhile the RMD situation here could vary in many ways depending on several details starting with who was named on her husband’s IRA as beneficiary and what your aunt did with respect to re titling that inherited IRA, or possibly defaulting to ownership or rolling it over to her own IRA. By failing to take beneficiary RMDs she might have defaulted to ownership. It is possible that the IRA has already exceeded the stretch available but that can only be determined by knowing the total history of this IRA starting when her husband passed.

Permalink Submitted by Edward Janecek on Sun, 2017-07-09 13:33

Thanks for the quick reply. My aunt was the beneficiary of her husband’s IRA, and she died six days after his death, so her estate inherited his IRA, and that is how it is titled by Fidelity. Fidelity issued an RMD to her estate when it transferred the IRA to her estate, and no further RMDs have been taken. When I asked Fidelity about the overall transfer from estate to beneficiaries, they agreed to do it, but cautioned that since no 1099 will be issued for the estate-to-trust transfer, the process may raise eyebrows with the IRS and might require a private letter ruling to be above board. Is this situation really unusual enough to require extraordinary measures, or is the Fidelity rep being overly cautious? The IRA is under $300k.

Permalink Submitted by Bruce Steiner on Sun, 2017-07-09 16:05

Transfers of inherited IRAs from an estate to the beneficiaries are the estate are relatively common, so it shouldn’t be a problem.

However, since her executors can’t complete the rollover on her behalf after her death (per PLR 9237038), the stretch will be limited to her life expectancy. If the same people are the contingent beneficiary of her husband’s estate, her executors could disclaim the IRA on her behalf, so that it would pass to the contingent beneficiaries.

Her executors would have to disclaim within 9 months of his death. In some states, a disclaimer by an executor requires court approval. So her executors should allow sufficient time for this.

Bruce Steiner
follow me on Twitter: @BruceDSteiner

Permalink Submitted by Alan - IRA critic on Sun, 2017-07-09 17:56

Assuming that they both passed after their RBDs because of the proximity of their deaths and also assuming that no spousal rollover is done, the RMD for years after the year of their deaths will be based on the longer of his or her single life expectancies. The year of death RMD that was distributed should be whatever he did not complete of his RMD for that year.

Permalink Submitted by Ben Meyer on Tue, 2017-07-11 18:16

Alan, this is somewhat subtle when you say that “the RMD for years after the year of their deaths will be based on the longer of his or her single life expectancies.” Are you saying that the wife became entitled to distribute her husband’s IRA in this manner due to the fact that she survived her hustand, albeit by only six days? Then, since she didn’t name beneficiaries of her own during the six day period, the legatees of her estate (the trust) will continue the same distribution period as she was entitled to receive.
Since the estate pours over to the trust this will apply to posession of the IRA but the distribution period will remain the same as determined during the six day period. The trust should then attempt to transfer the portions of each individual beneficiary to their own inherited IRAs. Does this sound correct?

Permalink Submitted by Alan - IRA critic on Tue, 2017-07-11 19:28

Yes. Since he passed after RBD, and if she does not become the owner by various means, her beneficiary IRA RMD is based on the longer of her single life expectancy or his. This is tricky because these ages are determined in different years. His age divisor is determined starting in the year of his death and would be reduced by 1.0 starting the following year. But her age as beneficiary is determined as of the end of the following year. For example, if they are both 75 in the year of death, using his age for the following beneficiary RMD year would result in a divisor of 12.4 (13.4 in year of death less 1.0). Her divisor for that year would be based on age 76 and divisor 12.7 and this is the one that would apply because it has the longest applicable distribution period. Upon HER death, she is still treated as the beneficiary so HER beneficiaries whether individuals, estate or trust will continue the RMD schedule she would have used, so trust qualification for look through is moot.
If the trust provisions allow the trustee to distribute the IRA, the trustee could then assign the IRA to the trust beneficiaries. This has no effect on the RMD, but will allow the beneficiaries independent management of their own inherited IRAs, can name their own successor beneficiaries etc.

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IRA transfer from estate, via pour-over will to trust, then to beneficiaries

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