Trust Inherited IRA
I am a beneficiary and trust advisor for my Aunts Trust. She had a $970K IRA that the trust mistakenly placed inside a standard (non retirement) trust account by the trust. I was never consulted prior to this happening. I caught the mistake early and the trust acknowledged their mistake and moved the funds over into an Inherited IRA within the Trust. This all happened within the 60 day rule window. This occurred in June -July of 2024. Everything that I am reading suggests that this mistake cannot be corrected within the 60 day rule and the funds may be fully taxable at the Trust tax bracket. Some of the funds have already been distributed to Beneficiary IRAs for myself and other Beneficiaries.
Does the Trust have a problem with the IRS? If they screwed up, is there any way for this to be fixed?
Permalink Submitted by Alan - IRA critic on Fri, 2025-03-14 16:17
Were funds actually distributed out of the inherited IRA to a trust, or was the inherited IRA just titled to the wrong trust and then retitled to the correct trust?
There should only have been a 1099R issued for the inherited IRA if a distribution was actually made. No 1099R for transfers.
How was the beneficiary listed on aunt’s IRA?
Permalink Submitted by Chris Fletcher on Fri, 2025-03-14 16:27
I’m trying to get clarity on how the beneficiary election was titled. At this point I don’t know who screwed up. It was either The Private Trust Company, the advisor or Equitable (where aunt had funds). Either way, seems like I may need to hire an attorney. One of her small IRAs (37K) went correctly to an inherited IRA within the trust IRA. Guessing maybe the advisor titled the beneficiary election incorrectly.
Permalink Submitted by Chris Fletcher on Fri, 2025-03-14 16:57
Seems that the Trust Company should have indicated the funds go into an inherited IRA and provided an account number for that IRA regardless of how the beneficiary was titled.
Permalink Submitted by Alan - IRA critic on Fri, 2025-03-14 17:05
Legally, the IRA custodian can only establish an inherited IRA for the trust named on the beneficiary clause. If there were more than one trust, the beneficiary clause should have been specific as to the date of the trust and name of the trust.
It’s impossible to tell who messed up here, but if the inherited IRA was titled to the wrong trust, and no distributions were made (no 1099R), the error could be corrected without damage between the custodian and the trustee of the trusts (both trustees if they differ). That process could be simple or very difficult.
Permalink Submitted by Chris Fletcher on Fri, 2025-03-14 17:18
There is a 1099R that includes the large IRA amount. So is it not possible to correct the issue after the fact? The Trust Company moved the money to an inherited IRA after I pointed out the error. Can they do this?
Permalink Submitted by Alan - IRA critic on Fri, 2025-03-14 17:42
They could do it, but that 1099R must be corrected to show 0 or the IRS will expect the taxable income to be reported.
Once a distribution has actually been made out of the IRA itself, it cannot be rolled over, but if the balance is still in the inherited IRA, this could be salvaged, but if so the 1099R must be corrected.
Permalink Submitted by Chris Fletcher on Mon, 2025-03-17 10:56
What would be the process to correct the 1099R?
Permalink Submitted by Alan - IRA critic on Mon, 2025-03-17 18:36
The issuer would have to be convinced that they made an error and that no responsible party requested a distribution. Most custodians will correct a 1099R (issued a corrected form with 0 in the boxes) only if they can be convinced that the distribution was entirely in error.