Change of Trust for Inherited IRA
A 56-year-old client passed away earlier this year and he was the TRUST beneficiary of an Inherited IRA. The beneficial account owner of the Inherited IRA was a GST trust and RMDs were being taken out over the remaining life expectancy of my 56-year-old client for the past five years. The original GST trust listed my 56-year-old client’s daughters as contingent beneficiaries so the two daughters will now have 10 years to take out all the money.
The issue is that the GST trust was just decanted and replaced with a different trust (with all the same beneficiary terms of the original GST trust) and now we need to change the titling of this trust beneficiary IRA to the new trust. The new trust has two sub-trusts for the benefit of the two daughters. Once we change the titling of the IRA to the new trust, we will then want to split the IRA 50/50 to the two sub-trusts so each daughter can take out distributions when needed.
Do you foresee this being a problem? We want to make sure the IRS doesn’t deem this to be a rollover, which is not permissible, and we don’t want the IRS to think this is a distribution. All the original beneficiaries are still the beneficiaries, and all the same trust terms still govern the Trustees and beneficiaries as they relate to any IRA distribution. Basically, everything is still flowing to the same beneficiaries with the new trust.
Thank you for any help you can provide!
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-09 15:41
This is a some what rare situation, but the IRA custodian presents most of the exposure since any 1099R reporting a distribution of the entire balance would be a real problem. Hopefully, the IRA is with a larger experienced custodian with a good estate Dept, otherwise the attorney who drafted the trusts might have to resolve any issues with the custodian (or new custodian) before requesting any trust changes. If the custodian issues a 1099R, it may be very difficult to get them to rescind it.
Bruce Steiner, an estate attorney who posts here, has undoubtedly handled some decantations and splits into sub trusts. He may see this and comment.
Permalink Submitted by Bruce Steiner on Mon, 2021-11-22 02:35
Alan: thanks. We’ve decanted many trusts, including some that were beneficiaries of IRAs
As Alan pointed out, it should be possible to do this. Perhaps it can be done in one step rather than two, in other words transferring the inherited IRA directly to the two new trusts.
Bruce Steiner
Permalink Submitted by Jonathan Sard on Tue, 2021-11-09 18:38
Do you think the custodian (TD Ameritrade) will consider this a distribution and issue a 1099R?
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-09 21:05
I have no idea. It depends on who processes the transaction and how it is presented. But this should be resolved at the time of the transfers with a firm committment by TDA that a 1099R will not be generated by their system.