How does the IRS link a Decedent to a Trust?
OK, this may be a stupid question but when someone dies and a Revocable Trust becomes an Irrevocable Trust and a new EIN is issued how does the IRS link the Decedent’s 1040 to the Trust’s 1041 since the 1041 has the new EIN but not the Decendent’s Social Security Number? Can’t go by the name only because for example there might be a lot of a John Does who died and John Doe Trusts.
Along these same lines, my late father had an IRA and the Trust is the sole beneficiary for the inherited IRA. Last year 2024 when my father died I filled out paperwork with Charles Schwab. Since my father didn’t take an RMD lain 2024 the Trust Inherited IRA took his RMD and Schwab issued a 1099-R. How would the IRS know that the Trust took the RMD for my late father in 2024 when only the Trust EIN is on the 1099-R and not my father’s Social Security number? Does Schwab issue some other paperwork to the IRS beyond the scene in addition to the 1099-R to link my father’s IRA before he died to the Trust Inherited IRA?
Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-25 12:20
It’s a good question, and Schwab does not issue any additional reports to the IRS.
The same issue applies to individual designated beneficiaries, but with their SSNs rather than a trust or estate EIN. The IRS has never shown must interest in enforcing beneficiary or year of death RMDs, and now that these rules are much more complex due to the Secure Act and the 10 year rule, the IRS may depend on the 10 year rule and an inclination to now enforce the reduced excess accumulation penalty as tools to incentivize voluntary adherence to the rules.
But if the IRS were to get serious about actual compliance, they would require that the beneficiary 5498 include the SSN of the decedent, in order to provide the ability to link accounts. This would of course be more work for IRA custodians, who would lobby against collecting this additional information for reporting.
Meanwhile, in the unlikely event that the IRS would question the year of death RMD, you could simply provide a copy of the inherited IRA statement showing a distribution to the trust. I assume that the IRS would apply any distributions to the trust first to the year of death RMD and then to any trust RMD, since the year of death RMD can now be completed up to the end of the following year.
Permalink Submitted by Trust812 on Tue, 2025-02-25 13:07
Alan, thanks for your quick answers to my questions! It’s unbelievable that there are not such systems in place considering that computers have been around for years! I am a former computer programmer so I always think like one and ask questions.
Does Schwab issue the 5498? Should I expect one from them this year for tax year 2024? Thanks!
Right on the Decedent’s final 1040 it asks whether an RMD was taken for the year but to my recollection on the 1041 it doesn’t ask if the Trust is taking an Inherited IRA RMDS for a Decedent. I would think this question should be asked.
Permalink Submitted by Trust812 on Tue, 2025-02-25 12:41
Duplicate post deleted.
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-25 13:28
Schwab should be issuing a 2024 5498 for your father’s IRA and another for the trust by the end of May. These go to the IRS, but perhaps only a statement showing the year end or date of death balance for each account to the taxpayer will be provided by 1/31. Therefore, you may not get the 5498 that the IRS receives, just a statement from Schwab.
The 1099R/5498 Inst for this have not changed in over 20 years and are somewhat confusing, as a custodian is allowed alternative reporting choices, and there also may be a delay depending on when the custodian captures the DOD and beneficiary info to establish an inherited IRA relative to the change of tax years. There should be no further 5498 forms for father’s IRA after the 2024 issued by May, 2025.
Suggest you read page 20 of the 1099R/5498 instuctions for inherited IRAs.
Permalink Submitted by Trust812 on Tue, 2025-02-25 14:37
Thanks Alan. In the past I think in May I have received a 5498 for my own IRA and said to myself what the heck is this and surmised that it was an IRS reporting requirement by the custodian.