Inherited IRA via trust

Clients (two kids, aged 30 and 27) inherit two bundles of qualified money from deceased dad. The beneficiary is actually a trust, with the two kids listed as beneficiaries inside the trust. The trust is pretty plain vanilla, with no special wording for qualified money.

XYZ company (401k plan) sends money to “Joe Blow Deceased IRA FBO Joe Blow Rev. Trust” with no problems. ABC company (401k plan) money is handled by dad’s old broker who has the money cashed out to the trust via a distribution and 10% is withheld. Account title of that money is now “Joe Blow Rev. Trust CGM IRA Beneficiary Custodian Daughter1, TTEE Ben. of Joe Blow”.

Now, dad’s old broker (and old attorney, who referred deceased dad to broker) is recommending the beneficiaries (the kids) dissolve the trust (no wording in trust recommending dissolving trust) and that the old ABC Company qualified money (now in the above mentioned account) will NOT lose their stretch status. Furthermore, the old broker is saying the IRA can be split into two accounts (one for each kid) and that all accounts do not need trust name in title (since trust being dissolved) AND that the IRS will not catch the fact that money was “distributed” since the client only needs to tell IRS that 10% was used to pay trust taxes if it ever comes up.

Does this pass the smell test to any of you?

I’m thinking the IRAs cannot be split up with separate RMDs and that the stretch on the distributed money (pay out to the trust) is dead. I’m thinking the money should have all been put into the inherited ira account I set up and that when RMDs are made they are made to the trust and taxed under the tax ID# and then finally the two kids can choose to make equal distirbutions from the trust account.

Furthermore, if the trust is dissolved what happens to the other accounts that have been set up properly that use the trust name and tax id number (old broker does not know how these were set up at this point).

I understand there is someone out in CA marketing a SPECIAL TRUST especially designed to be the beneficiary of his clients’ IRA and includes language that allows iras to be split up to each child, but this is not such a trust.

ANy and all opinions will be appreciated. 🙂



You are right, if ABC sent cash to the trust, the stretch is dead. On your other question, based on answers to a previous post, if one contemplated dissolution of the trust, two inherited IRAs could have been set up, both using the oldest daughter’s DOB. If the trust dissolved, each IRA could be assigned (via court order?) to a daughter, continuing with oldest’s DOB. I guess it cold be split now or later, as well. I have seen this done with annuities, where each daughter is the annuitant on a contract, using the oldest’s DOB.



You can leave an IRA in trust rather than outright. There’s no need for any special marketing for this.

You’d have to look at the terms of the trust to see whether the children’s shares go to them outright or are held in trust for their benefit. If they go outright, then there was no reason to run them through a trust that terminates.

For more on this topic, see my article “Trusts as Beneficiaries of Retirement Benefits” in the March 2004 issue of the Estates, Gifts & Trusts Journal: http://www.bna.com/tm/tmm0903_steiner.rtf

Please note that a forum such as this is useful for general information, but that the family should consult with competent tax/estates counsel for specific advice based upon the facts involved and their objectives.



Could you clarify further where the IRA was introduced into this chain of events? Or was this just a typo where “IRA” really means the QRP?



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