Supplemental Needs trust was beneficiary of IRA, now dissolved by court | Ed Slott and Company, LLC

Supplemental Needs trust was beneficiary of IRA, now dissolved by court

we have a situation where a father passed away, Oct 2020. Daughter, T, is/was on SSDI and so they created a supplemental needs trust to be the beneficiary of his IRA. Daughter, T, sole beneficiary of this trust.

there was/is an inherited IRA, father deceased FBO the trust.

now through probate court decision, the supplemental needs trust has been dissolved. The probate notice is simple, there is this inherited IRA and a non-qualified account in the trust. It indicates a sum to be paid to the trustee, a sum to be paid to the attorney and the balance to be paid to daughter T

what the goal or question is, can the inherited IRA that had named the trust stay in place with daughter T as beneficiary, since she was the sole beneficiary of the trust?

Or, is this a taxable event that won't allow continued tax deferral in father's inherited IRA?

What may I be missing? Any input on distribution timing would be appreciated, too. I do not know the extent of why daughter T was on SSDI or if it is still in place. Her age 42, if that is needed.

Thank you

Why was the trust dissolved? And was the trust deemed by the court to not be a legal SNT in this state and therefore never existed back to the DOD?  Or was it  dissolved for some other reason?  I assume the funds remain in the inherited IRA and either the trust or the daughter is an EDB with 2021 RMD questions, but I would not worry about a missed RMD until the IRA custodian can decide if this inherited IRA can be transferred to one in the name of daughter under daughter's SSN. This should not affect the SSDI award but to retain the SSDI her work earnings are limited.

Found out the trust was dissolved because daughter T is no longer on Medicaid. Trust was no longer necessary, per the attorney.  State is MI, forgot to add that before. Agree that it will be up to custodian to determine if the inherited IRA can be set up in daughter T name and SSN. Thank you very much 

  • Why did they need the court to terminate the trust?  If it were properly drafted the trustees would have discretion to terminate it.
  • Why would the trustees want to terminate it?  What if in the future the daughter has a taxable estate, gets divorced, outlives her spouse and remarries, has creditors, or once again wants Medicaid (for example, if she goes into a nursing home)?
  • If the custodian won't do the transfer, the trustees should move the inherited IRA to a friendlier custodian.
  • Bruce Steiner
 

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