Inherited IRA
I have a Survivor’s Trust (part of a normal A-B family trust setup) that at the death of the surviving spouse, was the beneficiary of her IRA. The trust had conduit provisions and the required documentation was timely provided to the IRA custodian. The IRA was transferred to an inherited IRA at Fidelity Management Trust Company (IRA-BDA) showing the surviving spouse as the original depositor. At the end of the post death administrative period, the Survivor’s Trust is to be distributed equally to two beneficiaries. One beneficiary being a trust for the benefit of the surviving spouse’s son and the other being the surviving spouse’s granddaughter. The Trustee is now ready to distribute the Survivor’s Trust including the IRA account. I am concerned that these subsequent transfers to new inherited IRAs will be in fact be treated as inherited IRAs. I have talked to the Fidelity inherited IRA department and a representative said that they will do what ever is requested by the trustee of the Survivor’s Trust to distribute to two new inherited IRAs. All the trustee has to do is submit a letter of instructions. I am not sure that the person at Fidelity I spoke with had ever confronted a situation as I have described above. Is the any special titling of the new accounts that is necessary? Should the Survivor’s Trust be somehow listed in the titling or is it just good enough to list the names of the two new ultimate beneficiaries in the title, along with the original depositors name, of course?
Jim Bristol, CPA
Permalink Submitted by Alan - IRA critic on Tue, 2021-07-27 00:32
The current beneficiaries are successor beneficiaries, and the IRS seems to prefer that they be titled showing the current successor beneficiary names “as beneficiary of the (survivor’s trust name)”. The original owner’s name can be dropped. However, the IRS also seems to accept other titling formats as well. Fidelity had the trust’s beneficiary provisions, so they are apparently comfortable with accepting assignment of the inherited IRA to the new successor beneficiaries. Both would be subject to the 10 year rule under the Secure Act.
Permalink Submitted by JAMES BRISTOL on Wed, 2021-09-15 20:58
Your last comment above mentions that the 10 year rule would apply to the new successor beneficiaries based on the information I provided. Would your response about the applicabiltiy of the 10 year rule change if I added to the information provided that the original depositor, i.e. the surviving spouse, of the IRA died in 2018, before the impact of te Secure Act? Unfortunately, there were some administrative issues involving the Survivor’s Trust that had to be resolved before distributions of its assets could commence.
Permalink Submitted by Alan - IRA critic on Wed, 2021-09-15 23:26
I had assumed surviving spouse passed after 2019, and since that was not the case, the Secure Act does not effect the A trust, which is apparently qualified for look through. However, the sub trust for the son must also be qualified for look through or the entire trust is not qualified. If not qualified, the the distribution period is 5 years if surviving spouse passed prior to RBD, and the remaining LE of surviving spouse if she passed after RBD. See IRS Reg 1.401(a)(9)-5 Q 5.
If all trusts are qualified, then the distribution period would be based on the oldest trust beneficiary who is not merely a successor beneficiary.
Permalink Submitted by Bruce Steiner on Sun, 2021-09-26 18:58
A survivor’s trust is one that the surviving spouse may revoke. If that’s what you in fact have, the surviving spouse could roll it over into his/her own IRA. The custodian may or may not require a legal opinion or a private letter ruling.
It would have been simpler if the IRA owner had named the spouse as the beneficiary rather than doing what he/she did.
You or the trustee may wish to consult with competent counsel who can review the trust and determine what it is and how best to proceed.
Bruce Steiner