Trust and Exemption Account txfer
L1: Trust and Exemption Account txferMy wife’s mother has two accounts in her Irrevocable Trust, Exemption account (IRA) and Survivor Account (Non-IRA). If her mom passes the trust is dissolved and the funds are distributed to the three daughters. The question is are the IRA funds in the Exemption trust subject to any taxes upon distribution to the daughters? Can the daughters take the exemption trust funds and roll them into a IRA in their name and if so what are the requirements when taking out funds either before or after 59 1/2. Thank you2009-09-03 12:33, By: johnnyg, IP: [126.96.36.199]
L2: Trust and Exemption Account txferException #4 to the 10% Early Distribution Penalty is “Distributions made from Qualified Plans and IRAs after the death of the employee or account owner.” Therefore, inherited retirement accounts should never be set up as SEPP 72-T accounts.
Non-spouse beneficiaries cannot roll over any distributions to their own IRAs.
Non-spouse beneficiaries ( and spouses who elect to be so designated) should make a trustee to trustee transfer to a newly created “inherited IRA”account in the name of the decedent but payable FBO (for the benefit of) the beneficiary. No contributions can be made to inherited IRAs.
Check with your tax advisor before doing anything with inherited retirement accounts. If the decedent is over 70 1/2, the REQUIRED MINIMUM DISTRIBUTION must have been already taken by the decedent, or it must be taken by the beneficiaries, and is subject to income taxes in the year of death, before any transfers are allowed to be made.
It is very rare to have IRAs in an IRREVOCABLE TRUST. However, there are some recent tax planning approaches using trusts as beneficiaries of IRAs. Was this as a result of her husband’s death ? Please explain more fully.
Further, if the daughters are of significantly different ages, the mother should separate her IRAs into different accounts for each daughter because of the varying life expectancy factors that would apply.2009-09-03 13:40, By: dlzallestaxes, IP: [188.8.131.52]
L3: Trust and Exemption Account txferSir
Understood, thank you. IRA was in a revocable trust however upon death of husband it became irrevocable.
Mother is 77 at this time so a RMD is being taken annually. Understand should mother pass RMD is required to be taken prior to transfer of assets to daughters. Daughters have age differential of less than 5 years from oldest to youngest.
As you have indicated the trust was the beneficiary of the husbands IRA and he is still listed on the account but it’s FBO his wife.
Daughter was concerned that the inherited IRA would have to be liquidated within a certain time frame (5 years) due to information passed on by second daughter.
Reading your post indicates that an inherited IRA can be established in the mothers name FBO the daughters, no contributions can be made to that account and anydistributions from these accounts are subject to income tax. Is there a time frame on the account or can the daughters hold the account for as long as they wish??
THANK YOU.2009-09-03 14:30, By: johnnyg, IP: [184.108.40.206]
L4: Trust and Exemption Account txferThe topic of INHERITED IRAs is outside the scope of this website, and has various nuances.
The MOTHER cannot set up her IRAs, or any IRAs, as FBO her daughters. That designation is done by the daughters only after their mother dies, when they set up the IRA they INHERITED.
The husband’s trust dictates what is to happen to the assets of the trust, i.e. the IRAs, upon the death of the primary beneficiary, his wife, the daughters’ mother.
Since the husband’sdeath, and the mother’s death, are after reaching 70 1/2, the non-spousal beneficiaries (daughters) use their life expectancy because it is longer than the deceased owner’s remaining life expectancy. ( IRS wording) Inherited IRAs start their distribution in the year after the year of death, using the Single Life Tables in IRS PUB 590 based upon the oldest beneficiary’s age at the end of that year folowing the year of death. ( If the IRA is separated into accounts for each beneficiary, then they each use their own ages.) After that first distribution, each succeeding year bthey reduce that initial life expectancy by 1.0, rather than ever looking at the tables again.
If there was a retirement plan, other than an IRA, plans are not required to offer all payout options allowed under the rules. A plan could mandate the 5-year rule, but only when death occurs before 70 1/2 (RBD), even if there is a named beneficiary. A plan can also require a lump-sum payment even though the 5-year rule is authorized under tax law.
You might want to consult J K Lasser YOUR INCOME TAX (at your library or super bookstore), or a tax professional now, or whenever the mother dies. She should also look into the provisions for converting the IRA into a ROTH IRA either all at once, or over a period of years, depending upon her tax situation. In 2010 there will be no income limitations for such conversions.
I am located near you ( in Lafayette Hill, PA) if you/she is interested in consulting me to do applicable tax planning, or meet with your/her tax preparer.2009-09-03 18:07, By: dlzallestaxes, IP: [220.127.116.11]
L5: Trust and Exemption Account txferNormally the life expectancy for payout of the death benefit is established at the first death(Husband in this case) If the wife as sole beneficiary of the trust rolled the account into her own name and then established the daughters as the New IRA Account beneficiaries then if the daughters establish separate inherited IRA accounts at the time of the mother’s death, separate life expectancise may be used.
If however the IRA account remains as an inherited IRA for benefit of the trust with the wife as the underlying beneficiary of the trust, then only the remaining life expectancy of the spouse may be used to distribute the account to the daughters.
2009-09-03 19:21, By: JEVD, IP: [18.104.22.168]
L6: Trust and Exemption Account txferThat is correct, since the life expectancy of the oldest trust beneficiary must be used for all beneficiaries, even if the trust provisions allow for trust termination with the IRA accounts eventually assigned to the trust beneficiaries.
And, the above provision contemplates a trust qualified for “look through” treatment, aka a qualified trust. If the trust fails to include all the provisions for qualification, it must be treated as a non individual beneficiary, with non of the beneficiaries able to use their own life expectancies.
There have been various IRS letter rulings allowing a surviving spouse who is the trustee and sole trust beneficiary to do a rollover to their own IRA.2009-09-03 21:21, By: Alan S., IP: [22.214.171.124]