Trust Beneficiary (titling)
Good Afternoon,
I have questions regarding the “RMD” flow and accompanying tax reporting upon look-through trust being the named beneficiary.
Facts:
Account owner passes away leaving his IRA to a qualifying “look-through” trust
The spouse is the sole beneficiary
Questions:
My understanding is the inherited IRA is re-titled as follows:
Step #1 Joe Smith, IRA (deceased mm/dd/yyyy) FBO: Jane smith, Trustee of the XXXX trust, beneficary
Whose SS/EIN is used when establishing inherited IRA? spouse? newly established trust?
Step #2 The RMD is withdrawn from the inherited IRA;
Does the RMD get deposted into a separate non-IRA (conduit or discretionary) trust account or are the RMD proceeds sent directly to the underlying beneficiary?
Whose SS/EIN is reported on the 1099-R? trust? beneficiary?
Does the spouse; as sole beneficiary have the option to rollover to her own IRA? I am under the impression the answer is “no” as a look-through trust is a non-spouse beneficiary. Non-spouse bene cannot facilitate a rollover.
Thank you in advance,
Brian
Permalink Submitted by Alan Spross on Wed, 2012-02-29 20:14
The EIN of the trust is used for reporting distributions from the inherited IRA, as the trust inherited it. If the trust can be terminated, as sole beneficiary the spouse can roll the IRA to their own IRA and use their own SSN from that point forward. Your suggested title for the inherited IRA is an approved option, but the IRA custodian may have a processing platform that requires some modifications. For example, there might not be room to show the trustee’s name, but the name of the decedent and the trust must both be included.
The RMD should be made out to the trust or trustee of the trust, deposited into the trust account and then distributed from the trust account to the trust beneficiaries in accord with the provisions of the trust. The 1099R should show the trust EIN, and the trust may pass through the RMD (or other amount) to the trust beneficiaries on a K-1.
There have been numerous letter rulings allowing the spouse to do a rollover unless the trust does not allow it. But if an IRA custodian cannot be found that will accept the rollover, the surviving spouse will have to pursue their own letter ruling.
Permalink Submitted by Bruce Steiner on Wed, 2012-02-29 22:54
For more on spousal rollovers where the spouse is not the named beneficiary, see my article on that subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf . It’s often possible to get the IRA to the spouse so that the spouse can roll it over.