IRA names Revocable Trust as beneficiary
My client’s aunt died in 2020 and left her IRA to a Revocable Trust, which did not meet the requirements for a conduit or see-through trust for qualified retirement assets nor provides for any on-going management of funds for my client as sole beneficiary of the trust. My client was also the trustee of the Revocable Trust, which of course became Irrevocable upon aunt’s demise. Pershing, the current custodian of the Inherited Trust IRA, says they will pay all distributions to the trust because the trust was the named beneficiary of the IRA. This means that the trust and a trust account has to remain open to receive distributions until the IRA is empty. My client is adamant that Pershing made a mistake titling the account and that it should have been titled FBO my client, instead of FBO the aunt’s trust.
To complicate matters, Merrill, the previous custodian of the Inherited Trust IRA, titled the account FBO my client, leading him to believe that the distributions would go to him directly, instead of the trust, thereby eliminating the need to keep a trust account open to receive distributions, which he is adamant about (not wanting to keep a trust account open).
My position is, regardless of titling (different custodians have different ways of titling), what matters here is who is going to get the 1099 reflecting distributions, the trust or my client. As I said earlier, Pershing will pay distributions to what is now the Aunt’s Irrevocable Trust and issue the 1099 to said trust. We have been unable to definitively get an answer from Merrill how they would have handled the 1099 had distributions been made while they were the custodian in 2020. Due to the CARES Act, RMD’s were waived in 2020, as such, there we no distributions made.
One option I have considered is terminating the trust and then see if Pershing, as custodian, will transfer the Inherited Trust IRA to an Inherited IRA, FBO my client, which would solve the problem of not having to keep the trust open year over year.
Grateful for any feedback, thank you,
Steve
Permalink Submitted by Alan - IRA critic on Thu, 2021-04-22 04:36
The trustee of the trust must adhere to the trust provisions, but those provisions may allow the trustee to assign trust assets (IRA) out of the trust to the trust beneficiaries. That would avoid any distributions to the trust, but will not change the RMD requirements. If the trust is not qualified for look through, the 5 year rule applies if death was prior to RBD, or the remaining LE of the decedent applies if death was on or after the RBD. I don’t know why aunt bothered to name the trust as beneficiary if the trust was to have no benefit post death.