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72t/Trust Beneficiary/Aggregation

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Last Updated On
BySteves

L1: 72t/Trust Beneficiary/AggregationO.K. here’s a good one to ponder:
A new client has asked us to take over her account. Her husband died 5 years ago @ age 54. He had 2 IRA’s, both with significant assets. The advisor at the time set the husband’s IRA’s up as follows:
#1 Decedent IRA, Spouse Beneficiary #2 Decendent IRA, Credit Shelter Trust Beneficiary (65%), Marital Trust Beneficiary (35%)
The wife also has her own IRA, again with significant assets.
IRA #2 is distributing annually to the respective trusts based on wife’s life expectancy (look-through). IRA #1 makes no distributions.
Two years ago the wife needed extra income, so the advisor set her up for 72t withdrawals from her IRA. However, he aggregated the values of all 3 IRA’s to determine the withdrawal amount.
Here are my questions:
1. Ignoring the fact that we could have begun distributions from IRA #1 without 72t, is it proper to aggregate the values of all 3 accounts to calculate the maximum 72t withdrawal from the wife’s IRA?
2. If it is allowable to aggregate the values, what effect does the ongoing distributions from IRA #2 have on 72t?
3. If it is allowable to aggregate the values, will future withdrawals from IRA #1 before the end of 5 years/age 59 1/2 have the effect of “busting” the 72t plan?
4. If aggregating the 3 IRA’s was improper, how do we undo the mess?
5. What other issues might be lerking out there that I should make the client aware of?
2005-09-19 17:16, By: SteveS, IP: [64.185.18.113]

L2: 72t/Trust Beneficiary/AggregationHello Steve:
Fortunately, I think your client, not you, is in a world of hurt. IMHO, a taxpayer can only aggregate IRAs they own and only the IRAs they own. Your description seems to indicate that she has aggregated non-owned IRAs to determine the annual distribution; in short, not good.
Since I suspect that the distributions are fairly material, I suggest your client retain a top notch tax attorney.
TheBadger
wjstecker@wispertel.net
2005-09-19 18:26, By: TheBadger, IP: [66.250.23.21]

L2: 72t/Trust Beneficiary/Aggregationsteve-s–have run into this before with clients coming to me. Have found,and you can check this with tax lawyer, that thesimpliest and about the onlyway out is to stop the 72t on her IRA and pay the 10% penalty and other fees associated with breaking 72t. Then have her draw funds from the decedent IRA as she can draw any amount at any age with no 10% penalty. Aboveactions are designedto cut losses, keep her income going,and minimize losses due to incorrect 72t method.Next question is possibility of suit against previous advisor to try to recover penalty losses; butget her off wrong track first and fast and onto right track, then look to past. good luck.2005-09-21 09:09, By: john, IP: [68.187.171.50]

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