IRA Trust – custodian refuses to roll to inherited IRAs

I began working with a client late in the estate management process.

The IRA owner was in her late 60s and predeceased her husband in his 90s. She died at the end of 2010 and he died during summer 2011. Because he had children from a previous marriage, the IRA was left to her husband for his lifetime and she wanted to ensure that her siblings, nieces and nephew received the balance of the account.

The custodian first agreed to transfer the balances to inherited IRAs for the trust designated beneficiaries. Then said that they would only do so with a Private Letter Ruling.

Because the authority that I have found is relatively recent, has anyone had a client where the primary beneficiary died and the IRA trust assets were rolled to inherited IRAs by the custodian?

The assets are not sufficient to warrant pursuing a Private Letter Ruling. There is also a possibility that the 10/31 deadline was missed, but that is not why the custodian states it is refusing.



The decision with respect to inherited IRAs should be driven by the trust provisions. Perhaps the trust is not clear, but if a review of the trust appears to support termination of the trust or the distribution of the IRA assets to inherited IRAs, then the most inexpensive procedure would be to seek out another IRA custodian and have the IRA transferred to the new custodian.

The present custodian might think that the trust is not clear and involves a potential for litigation. If a new custodian cannot be located who will interpret the trust differently, perhaps signed waivers of all interested parties will be acceptable to the current custodian.

RMDs are yet another issue.
If the trust is not considered a qualified trust, the 5 year rule applies.
And if the trust IS qualified, husband’s death prior to 9/30 of the following year should allow exclusion of him as a beneficiary for RMD purposes, leaving the oldest of the other beneficiaries as the determining RMD divisor for all of them.



It seems very clear to me. It is part of the Will. It says that it is a trust for the husband and if there is anything left when he dies, it is to be divided in specific shares to her sisters, 2 nieces and nephew.

I left out the first word of the reply from the custodian which is the custodian’s name:

[custodian] is asked this question often. It has been reviewed by our Retirement Product Team and our Legal Department. If the designated Beneficiary was a Trust, we will not allow the individual Beneficiaries of the Trust to transfer the assets into Individual Inherited IRAs. The assets must stay in the Inherited Trust Accounts until fully distributed as a reportable death distribution.
We understand there are Private Letter Rulings (PLR) that have enabled others to do this but these PLRs can only be relied upon by the individuals who requested them. PLRs can not be viewed as Law or precedence to allow others to act on their rulings. The Trustees may choose to go to the IRS to obtain their own PLR to allow for this but there is a cost factor that must be considered. They should speak to a Tax Professional before making this decision.
The section of the Internal Revenue Code [you are] citing (See Treasury Regulation Sec. 1.401(a)(9)-4.) only applies to RMDs in obtaining a life expectancy to stretch out the life of the Inherited Trust over the life expectancy of the eldest beneficiary of the Trust and further this section defines what is required for a Trust to be deemed Qualified to allow you to look through the Trust to obtain a life expectancy… this section of the Code does not enable you to change the beneficiary from the Trust to an Individual. This section is for determining the distribution period only.’

Do you know of custodians that will allow transfer to Inherited IRAs?



Custodians will allow the inherited IRA to be transferred to separate inherited IRAs for the beneficiaries when the trust terminates – they don’t allow it for an ongoing trust. Natalie Choate’s excellent book “Life and Death Planning for Retirement Benefits” has an entire chapter on trust beneficiaries and suggestions for having the IRA transferred when the trust terminates.



I agree with Alan. If the attorney handling the estate can’t get to someone higher up at the current custodian, and you’re willing to assume the risk of not having your own ruling, you can move the IRA to a different one.



Thank you for a solution we had not tried. I contacted 2 potential custodians. Each was willing to do it – one said that only they and one other will do the optimal solution. I have presented the options to my clients and expect that they will move forward with transferring the account and then splitting it.
Marcy



Good. I assume they carefully reviewed the trust before making this decision.



I am experiencing the same issue with Wells Fargo. Interestingly, the Trust terminates when the beneficiary turns 35; the sole beneficiary of the trust was substantially older at the death of the IRA owner. This shouldn’t be a pass through issue. I’ve requested a conference call with their ERISA attorney. It seems there is some procedural manual that a local functionary is using as a basis for this.

Thoughts?



Why would an IRA owner go through the effort to create a trust, name the trust as beneficiary of the IRA, and then have the trust pay out immediately upon the IRA owner’s death?

In hshifrin’s case, it would have been easier for the IRA owner to simply leave the IRA to the beneficiary outright, or (our preference unless it’s too small to warrant administering a trust) leaving it in a trust that does not have to end at a specified age.

But by going higher up the chain, it should be possible to get the financial institution to transfer the IRA to an inherited IRA in the name of the beneficiary.



I have had good luck with American Funds. Basically, the TTEE signs off that the trust is qualified and who the beneficiaries are. Large clearing firms are much harder to deal with usually.

I think I should start a death claim business!



Pershing will not do it.



Perhaps this will help. 



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