Deadline concern

Submitted by John Foster on Thu, 2020-12-17 16:38

Client’s mother passed away in 2019. Trust is named as beneficiary for IRA’s and 403b.
After checking with current custodians of the IRA’s , the plan was to have one IRA create a trust inherited ira that would receive the remaining IRA and the 403b as transfers. Once that was done then separate IRAs as inherited IRAs would be set up for each of the 2 daughters that are beneficiaries of the trust. Once that was done transfers would then be made to the separate inherited IRA’s from the trust inherited IRA.

First-does that sound like the correct order of events? and

Second does this need to be completed in 2020 in order to preserve the 10 year stretch or since the death was in 2019 preserve the original stretch previously available?

Thank you,

Scott



Submitted by Alan - IRA critic on Thu, 2020-12-17 19:58

  • The 10 year rule only applies to deaths after 2019, therefore the Secure Act does not apply in this case. 
  • The RMDs in this case are determined by whether the trust was qualified for look through with both the IRA and 403b custodians. If this was not completed by 10/31/2020, the beneficiaries of the trust cannot be treated as designated beneficiaries and the trust would have to be treated as a non individual beneficiary. That would evoke the 5 year rule if mother passed prior to her RBD. A non individual beneficiary of a 403b can never transfer the 403b balance to an inherited IRA, and in that case the 403b would probably require a lump sum distribution to the trust.
  • Then there are several other questions about the trust. Did it include language creating sub trusts?  What the original intent of the trust, and what was the reason for creating additional trusts?

Submitted by John Foster on Fri, 2020-12-18 06:31

The RMDs in this case are determined by whether the trust was qualified for look through with both the IRA and 403b custodians What is the required process for that-who determines whether it’s qualified?A non individual beneficiary of a 403b can never transfer the 403b balance to an inherited IRA, and in that case the 403b would probably require a lump sum distribution to the trust. Does this mean that a trust should never be named as a beneficiary to a 403b, does this also include a 401k?  When we spoke with the 403b custodian they seemed to indicate that they could transfer the funds to an inherited IRA in the name of the trust. Were they in error?  

Submitted by John Foster on Thu, 2020-12-24 01:26

You mention that the trust would have to be treated as a non individual beneficiary. That would evoke the 5 year rule if mother passed prior to her RBDWhat if the mother passed after the RBD-if not the 5 year rule-what would the rule be?

Submitted by Alan - IRA critic on Thu, 2020-12-24 01:46

If she passed after her RBD and the trust beneficiary was not qualified, the distribution period would be the remaining life expectancy of the decedent using Table I. That is usually considerably longer than 5 years.

Submitted by Alan - IRA critic on Fri, 2020-12-18 18:48

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