A trust is listed as the Beneficiary of an IRA

Submitted by CARL FELDMAN on Thu, 2018-07-26 14:35

I have two clients that were married for 40 years. One was a 73 year old male us citizen and his spouse is a 84 year old citizen of Japan that has permanent residency in the US. The 73 year old has about 400k in IRA assets that he was taking his RMD’s annually. They were told by their attorney that they needed a Q DOT trust in order to protect the 84 year old wife if the 73 year old died. The attorney stated that if the 73 year old died all of his assets would be taxed at 50% if left to the non US citizen wife. The attorney set up the Q Dot Trust as a testamentary trust with the attorney as the trustee. I was told to make the beneficiary of the IRA’s the Q DOT trust. I changed the beneficiaries from the wife to the Q DOT trust.

The 73 year old died 3/25/2018. When we went to the attorney/trustee with death claim forms, the attorney said the tax law changed and the trust was no longer needed. The attorney/trustee has disclaimed the assets. The trust was never set up and will never be set up. By default the assets are to be left to the estate of the deceased. The widowed spouse has been named as the Executrix of his estate. His will states that all of his belongings go to his Q DOT Trust and then to his wife.

The IRAs are in fixed annuities. The annuity companies want to pay the death proceeds to the Estate of the deceased.

How do I prevent the estate paying all the tax upfront on the proceeds? Can I roll these proceed into an IRA in the widow’s
name?



Submitted by Alan - IRA critic on Thu, 2018-07-26 15:08

There are numerous PLRs allowing a surviving spouse who is the sole beneficiary under the will and also the executrix of the estate to roll over the inherited IRA to their own IRA. Enough PLRs so that attaining yet another should be unnecessary. The estate attorney will probably have to present this issue to the insurance companies along with the death certificate and required copies of the qualified disclaimer.  ASAP the executrix should make it clear that no distribution is to be made to the estate until the executrix can locate an IRA custodian willing to accept a rollover contribution to her own IRA. The year of death RMD, if not completed needs to be distributed by year end, although the penalty for being late can be waived if these issues are not resolved by year end and the year of death RMD is not distributed until next year.

Submitted by Bruce Steiner on Thu, 2018-07-26 21:17

  • In order to qualify for the marital deduction, assets passing to a noncitizen spouse have to be in a qualified domestic trust (QDOT).  The reason for that is to insure that the estate tax will be paid when the spouse dies, even if the spouse is no longer a United States resident.
  • Treas. Reg. § 20.2056A-4(c) allows the surviving spouse to agree to contribute to a QDOT the principal portion of each annuity payment under a non-assignable annuity.  The regulation provides that the spouse’s interest as beneficiary of an IRA is eligible for this procedure.
  • In other words, you can leave an IRA to a noncitizen spouse, and it will qualify for the marital deduction if the spouse creates his/her own self-settled QDOT, and agrees to contribute the principal portion of each IRA distribution into the QDOT.
  • In PLR 9746049, the spouse was the beneficiary of an IRA.  The Service allowed the spouse to agree to contribute the principal portion of each IRA distribution to a QDOT.
  • Is the trustee permitted to disclaim?  In many states, a trustee isn’t permitted to disclaim.
  • The spouse may want to consult with competent tax/estates counsel.  
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

Submitted by CARL FELDMAN on Fri, 2018-08-03 16:39

I have read your comments and appreciate the info.  I have spoken to the IRA custodians and they have disqualifiedthe trust.  They want to pay the death claims to the Estate of the deaceased.  How do I get those proceeds into an IRA?

Submitted by Bruce Steiner on Fri, 2018-08-03 21:58

With enough disclaimers (spouse as beneficiary of the QDOT as to the IRA, then any other beneficiaries of the estate, etc.) it may be possible to get the IRA to the spouse so she can roll it over.  Competent counsel would have to review the Will to see if it’s possible.

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