Inherited IRA with trust as beneficiary

Submitted by Trevor Holsinger on Tue, 2020-12-15 17:49

Here is the background.

John Doe died with his IRA primary beneficiary being his trust: Joe Doe Revocable Trust.

The Trust beneficiaries are John Doe’s children, two individuals.

An Inherited IRA was formed for John Doe’s daughter, one of the trust beneficiaries. The other beneficiary took a full IRA distribution for their one-half. The new IRA was titled Joe Doe Inherited IRA beneficiary John Doe Trust.
At this point, all IRA distributions will made to the John Doe Trust.

The trustee of the John Doe trust wants to get do away with the John Doe Trust.

Question: Can the John Doe Inherited IRA with the John Doe Trust as the beneficiary be converted/rolled over to a new John Doe Inherited IRA for the benefit of John Doe’s daughter?

Trevor



Submitted by Alan - IRA critic on Tue, 2020-12-15 18:46

The provisions of the trust determine whether the trustee has the authority to assign daughter’s interest in the trust to her own inherited IRA. But it sounds like this has already been done for Joe’s share.

Submitted by Trevor Holsinger on Tue, 2020-12-15 22:08

The trust doesn’t specifically state how to handle the IRA.  The trust says to split the asset into 2 equal shares, one for each beneficiary.  Currently, there is an Inherited IRA with the trust as the beneficiary. Can this IRA be converted to an Inherited IRA with the individual as the beneficiary.  If so, how?  One custodian won’t allow a conversion to another IRA.  We could distribution the IRA to th Trust, then the trusted could open a new Inherited IRA with the individual as the beneficiary and deposit the funds.

Submitted by Alan - IRA critic on Tue, 2020-12-15 23:31

  • Sounds like the trust provisions regarding termination or partial distribution of trust assets is vague. What does the attorney who drafted the trust indicate with respect to the trustee having the option to distribute assets out of the trust?  
  • Distribution of the IRA balance to the trust would be a taxable event to the trust of the entire IRA balance in a single year. Whatever stretch is allowed would be destroyed even if the trust was subject to the 10 year rule. If the trust is a conduit trust, any IRA distributions made to the trust must be passed through to the individual trust beneficiary and taxed on the individual’s personal return. But if the trust accumulates income, the distributions would be taxed at the higher trust rates.
  • If the trust does not allow the trustee to assign the IRA out of the trust, half of the IRA has already been passed through the trust to

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