Disposition of assets in probated IRA inherited by a trust
I am executor of a CA estate that had an IRA with value above probate limit and no beneficiaries designated. The pour-over will pours to a trust. Must I liquidate this entire IRA (incurring tax) in order for the trust to inherit, or can it be passed directly to the beneficiaries of the trust as inherited IRAs once the decedent’s RMD is satisfied?
Permalink Submitted by Alan - IRA critic on Thu, 2025-03-20 19:17
The inherited IRA must be established by the estate. The executor can then request that the inherited IRA be assigned to the trust, and the trustee of the trust can assign the inherited IRA out of the trust to the trust beneficiaries if that is allowed by the trust document. The IRA custodian may balk at one or more of these transfers or may allow the assignment from the estate to go directly to the estate beneficiaries.
Since the year of death RMD can be taken up to the end of the following year, it can wait until the above transfers are completed and then distributed.
If the trust was not listed in the beneficiary designation (“trust created in my will)), it’s not qualified for look through and the annual RMDs would be distributed over the remaining LE of the decedent.
Permalink Submitted by LJ Camm on Thu, 2025-03-20 20:17
THanks for your clear reply. If the trust docs are not amenable to the above distribution to beneficiaries (at any LE), is the only other solution liquidating the IRA creating an immediate taxable event for the whole IRA? I’ve been told probate forces an immediate liquidation of the IRA as property of the trust.
Permalink Submitted by Alan - IRA critic on Thu, 2025-03-20 22:01
No, it should not. IRA custodians rarely “force out” a distribution like qualified plans do. Unlike an estate that executors wish to close in a short time, a trust has an indefinite life span. Therefore, the trustee of the trust should be able to limit distributions to just the RMD amount, whether based on the remaining LE of the decedent or the LE of the oldest trust beneficiary. If the trust is qualified, the trust will be subject to the 10 year rule, with annual RMDs in years 1-9.
If the trust is not qualified (most are) or was not specifically listed on the IRA beneficiary form, the distribution will either fall under the 10 year rule if decedent passed prior to RBD, or the remaining ghost life expectancy of the decedent if they passed after RBD.
In short, there are alot of variables here with respect to the RMD, but the custodian should not be forcing out any lump sum distributions. That said, if the custodian is a brokerage or mutual fund company, they usually know this, but if it’s a bank, CU, or insurance company things could become difficult.