Trust, as beneficiary on an IRA Annuity
Deceased age 56 has a $65,000 annuity IRA. When claim was filed the annuity company said they would write a check for the account balance and pay it to the Trust. This would create a taxable event of 15 to 25%. Her surviving Trustee is her husband age 46 who should be receiving this account as a spousal rollover. I had him sign a disclaimer as the successor Trustee to disclaim it to himself for a spousal rollover.
The annuity company came back and said that they would need to send this account to the estate instead of directly to him. It turns out that in order to do this the account will need to be probated at a cost of $2500 to $3000 for the one single asset.
Does anyone have experience with this issue and has found a work-a-round or loop hole? Do I just need the attorney to get on the phone with the annuity companies attorneys and have a heart to heart talk about this issue?
If we go ahead and probate the account so that it can go directly to their estate can he still utilize a spousal rollover provision?
Permalink Submitted by mk foss on Thu, 2010-09-09 00:08
When someone disclaims an asset, they cannot choose where the benefits will go. A disclaimer from the trust as a primary beneficiary would make the contingent beneficiary come into play. When there is no contingent beneficiary named, the benefits go to whomever the annuity company has provided as a default. Sometimes it’s the surviving spouse but the estate is often the default choice.
Anything payable to an estate must be probated – there is no work around there.
The IRS has sometimes allowed a spousal rollover through an estate if the surviving spouse is the executor and sole beneficiary of the estate. In order to get this treatment you need a private letter ruling from IRS. The current price is $9,000 to the IRS and $5-15,000 to the attorney or CPA who writes it up and shepherds it through the IRS.
No one should ever sign a disclaimer until they know exactly what will happen to the asset disclaimed.
Permalink Submitted by Alan Spross on Thu, 2010-09-09 18:54
Mary Kay,
What is the affect of a disclaimer by the trustee in a situation where the estate is the default beneficiary. There is a pour over will as might be expected with a RLT that transfers probate assets to the trust. Is there some provision in pour over wills that exempts assets from going back to the trust that the trustee originally disclaimed?
This should not affect the ability to pursue a spousal rollover, but wondered if it caused any other technical problems.
Permalink Submitted by mk foss on Thu, 2010-09-09 20:30
When someone other than a surviving spouse disclaims, they may have to do another disclaimer in order to make the disclaimer valid. Example: Son is the primary beneficiary and family trust is the contingent beneficiary. Son must disclaim both his interest in the IRA and his interest in the trust or the disclaimer would not be valid. However if the spouse were the primary and the family trust contingent, the spouse can disclaim even though he/she is a beneficary of the trust and the disclaimer works.
If the IRA is payable to a trust, the trust beneficiaries would disclaim and the estate becomes the beneficiary. If the estate is entirely payable to the trust – the disclaimer didn’t accomplish anything unless the beneficiaries then disclaim their interest in the trust. At that point you need to see what happens to trust assets if the trust beneficiary predeceases. Without a disclaimer of the trust assets the disclaimer isn’t valid because it went back to whomever disclaimed it. Yet another reason to figure out what happens next before you do a disclaimer.
Permalink Submitted by Bruce Steiner on Sun, 2010-09-12 02:34
You don’t probate assets. You probate the Will. As is often the case, they probably spent as much to try to avoid having to probate the Will as it would have cost to probate the Will.
With the appropriate disclaimers, it’s often possible to get the IRA to the spouse who can then roll it over. For more on this, see my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf.
Whether a trustee can disclaim depends on state law. Depending on state law, the beneficiaries of the trust may have to disclaim rather than the trustee.
It’s impossible to comment on what disclaimers are needed in this case to get the IRA to the spouse without seeing the Will and the trust agreement. The attorney handing the estate should be able to advise as to what disclaimers are needed.
There have been so many rulings on spousal rollovers that some custodians will allow the rollover without a ruling. Some custodians will allow the rollover if you give them a legal opinion.
Annuity companies are often more difficult to deal with than other financial institutions.