Flexible IRA custodians

Submitted by John Laster on Tue, 2019-01-08 18:53

My client would like to assign his IRA to a wholly-owned grantor trust. The current custodian has an anti-assignment rule. Consequently, the existing custodian will not allow the assignment.

My client has asked me if there are other custodians who are more flexible in allowing assignments. Does any of you have experience with IRA custodians who do not have an anti-assignment policy?

Many thanks!



Submitted by Alan - IRA critic on Tue, 2019-01-08 23:24

Only an individual can own an IRA per the tax code. Client needs to make the trust the beneficiary on the IRA account if he wants the trust to inherit it. Almost all custodians would allow that.

Submitted by John Laster on Wed, 2019-01-09 11:33

Thanks. Let me clarify, though: There have been several instances in which the Service has approved the assignment of a beneficiary’s inherited IRA to a wholly owned grantor trust for the benefit of that beneficiary. An example is in PLR 201116005. Where we are trying to go: we would want the trustee to be in charge of withdrawing and applying the RMDs, etc., for the benefit of the beneficiary. In order to effectuate that, I am assuming,  perhaps incorrectly, that the beneficiary of the inherited account would need to assign his rights to the trustee of the trust so that the custodian would thereafter follow the directions of the trustee, not those of the beneficiary himself.The current custodian understands what we are trying to do and sympathizes, but … he says he cannot accommodate our request because his firm does not permit assignments at all. The current custodian volunteered that he was quite sure that there were other custodians who could be more flexible in allowing assignments but that he didn’t know how to find them. That’s why I’m writing.  Thanks again for your thoughts.

Submitted by Alan - IRA critic on Wed, 2019-01-09 16:59

Ok, with respect to your client being the beneficiary of the account, it is obviously too late for the owner to name a trust as beneficiary which would have been the ideal solution. According to Natalie Choate in 2016, there has been 3 PLRs allowing the transfer of an inherited IRA to a grantor trust, one of which is the one you referenced. However, later in 2011 the IRS concluded differently in PLR  2011 29045.  Natalie maintains that anyone wishing to pursue this needs to secure their own PLR. The costs for such a PLR including legal costs approach 20k, and a positive ruling is certainly in doubt.  As for the custodian, it is very unique that they would never accept an assignment, even the frequent everyday assignments from executors wishing to close an estate. Most larger custodians would probably accept a PLR obtained by the client since that would reduce their legal exposure. Therefore, the client should determine if they want to spend the time and money for the PLR factoring in the size of the inherited account, and if so they should also do a direct transfer of the inherited IRA to a larger custodian that has already agreed to recognize the PLR findings.

Submitted by Bruce Steiner on Sun, 2019-01-13 11:27

  • The rulings allowing beneficiaries to transfer inherited IRAs to grantor trusts appear to be for Medicaid payback trusts.  The transfers were not completed gifts for gift tax, the IRA was still includible in the beneficiary’s estate, and the trusts were grantor trusts.
  • We don’t know whether the IRS would expand this to a similar grantor trust outside the Medicaid or special needs context created by a beneficiary to facilitate management, or whether the IRS was creating a narrow exception in these rulings to enable a beneficiary to qualify for or retain eligibility for Medicaid.
  • If the amount involved is sufficient, it might be worth applying for a private letter ruling.  The argument in favor of it is that it doesn’t change the tax consequences — the transfer isn’t a completed gift, the IRA is still in the beneficiary’s estate, and the beneficiary is treated as the owner of the trust for income tax purposes.
  • Bruce Steiner

Submitted by John Laster on Mon, 2019-01-28 20:35

Thanks to Alan and Bruce!

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