Inheriting an IRA
Client died 5 years ago. Trust was bene of her IRA, with specific names of people listed in the trust to inherit. Dau, who was successor trustee and bene, was overwhelmed by the estate settlement process. There were several rental properties to dispose of, including one that her brother was living in and refusing to vacate. Distributions in excess of potential RMD numbers were taken every year to cover trust expenses. Long story short, the funds were not all distributed by the 5 year point, and the custodian cut a check to the trustee on Dec 31 for the balance in the account as a full distribution. Not a desired result. Custodian sent a letter to trustee in November saying if balance wasn’t distributed, a check would be cut. Trustee says she never saw the letter. I also never got a copy of the letter.
Can the named bene’s still do an IRA rollover to an inherited IRA when the trustee gets the check? If not, who is the money taxable to? The trustee should get a 1099 for a 2019 distribution, even though she won’t get the check until 2020, and won’t be able to distribute to bene’s until 2020.
Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2020-01-06 17:15
Sounds like the trust was non qualified for look through for one of many possible reasons. As such if the client passed prior to her RBD, the 5 year rule applies. Once the IRA has been distributed, there is no rollover possible (except in certain cases for a spouse). Either the trust retains the income reported on the 1099R or passes it through to the trust beneficiaries for reporting on their respective 1040. The beneificiary’s rate is considerably lower than the trust rate in most cases, except when the amount distributed is very small. Therefore, it sounds like there were no options to the lump sum distribution the trustee could have applied, so the lack of a letter is more a matter of professional courtesy than missing an opportunity.