Assigning beneficiary estate to trust

Submitted by James Magno on Wed, 2018-07-18 01:42

IRS has issued letter rulings rule favorably that estates that are beneficiaries of IRAs can transfer the rights to the ultimate beneficiaries by titling (inherited) beneficiary IRA accounts. For examples see PLRs 201128036 & 201208039.
I would like to propose to the financial adviser that my client(estate PR) retitle the IRA to a beneficiary inherited IRA.
My question is this: other than explaining that the tax law provides for this option, is there a template and or an IRS cite that is substantial authority? is there something compelling that I can share with the advisor that will help grease the skids. I tried this recently with Morgan Stanley and they balked. My goal has little to do with tax planning directly. I would like to apply the 5 year rule and shut down the estate in one year to avoid ongoing probate filings.
is there a template letter or an IRS cite with more clout?
Thanks!
Jim



Submitted by Alan - IRA critic on Wed, 2018-07-18 15:29

  • I think this resistance has persisted for two reasons. IRA custodians would generally be happy to pay out the lump sum to the estate because the inherited IRA is a wasting asset and prone to estate involved litigation issues. They know that the executor will not elect to keep the estate open for years. Secondly,  since the estate should not have become the beneficiary in the first place, negative publicity about a particular custodian over this practice is not likely to affect many IRA owners not paying attention, or they would name individual beneficiaries or charities directly for the IRA.
  • I have not heard of any negative PLRs on this matter or any IRS resistance to assignment. Natalie Choate has a link on her site under “Bulletin Board” to a sample tax opinion, but that link no longer works. She has also posted a recommended executor letter to be sent to the IRA custodian.  Even if a clear tax opinion was available the custodians who decide as a matter of policy to refuse assignment will likely continue that practice until negative publicity resonates. In such cases, if the executor can find another firm to accept the inherited IRA and assignment to beneficiaries of the estate in a direct trustee transfer, the inherited IRA could be transferred to the new custodian.


Submitted by Bruce Steiner on Wed, 2018-07-18 18:03

  • It’s often better to keep the estate open for the 5 years.  That lets you offset administration expenses against the IRA income, and divide the remaining income among the estate and beneficiaries each year.  By using a fiscal year you can generally get 6 or 7 taxable years.  It takes a while to administer an estate in any event, so you’re not extending the estate administration period dramatically.  There isn’t that much effort to keeping the estate open — basically filing annual fiduciary income tax returns.
  • As Alan points out, if the broker won’t cooperate, the executors could move the account to another financial institution.
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL


Add new comment

Log in or register to post comments