Qualified Account death claim with trust as beneficiary post Secure Act

[Allen Trent]

Any of you professionals deliver a death claim on a Qualified account(IRA/SEP/SIMPLE, etc) post Secure Act with a Trust as beneficiary?

involved currently with 1 such case. IRA holder was over age 72 (past RBD date). Lawyer 12 years ago had drawn up very specific language in the trust thinking look through provisions of a trust would always be an option. Really no reason for trust to be the primary but the lawyer insisted even though spouse had died & trust was intended for 3 kids to get IRA----Had very specific language for 3 children to use conduit trust for the retirement accounts to move into inherited IRA.

Problem is laws have changed & Secure Act was silent on look through. IRS Publication 590-B even states a trust (even if meets the 4 required look through standards) only has lump sum or life expectancy payments for someone already past RBD. If they were under age 72, 590-B says 5 year deferral would be an option for entity like trust/charity, etc

Sure, we almost never want to suggest a client list a trust as beneficiary on qualified funds (etc maybe 2nd marriage QTIP, Special needs, etc), but this could be a problem going forward if custodians cant/wont assist with the look through

what are you doing about this service-wise & any carriers/custodians you are working with that are being super aggressive in their interpretation? Best interest & Fiduciary issues could come into play in my mind if the carrier/custodian is over aggressive & helps set up something the IRS later says couldnt be done (10 year deferral, etc). at the same time, what does the rep/agent on such a case owe the client right now in terms of best interest to get this communicated to anyone with trust a beneficiary.

NOTE-- This case I am seeing is $350k that is being paid as a lump sum because unable to use the look through of the trust. This would been a perfect place to have also listed contingent beneficiaries, but most reps/agents dont list contingent when there is a trust. had the rep listed contingent as 3 kids, the trustee could have disclaimed the IRA & the money would have went to the 3 kids as contingents & each could have utilized the 10 year deferral.

very confusing, wondering if any of you have any better current info on this situation.........double check all those IRA accounts & maybe warn in writing any with trust as bene that they may be substantially limiting their beneficiaries options & many carriers/custodian wont be playing attorney to interpret legal documents before better IRS decisions/directives are in place.

Info online is somewhat limited & contains a ton of outdated wrong info from prior to secure act & even post secure act, but prior to more IRS direction.

 

[scagnt83]

Dang Allen. You dont deal in simple do you?

I dont understand why a lawyer would insist on using a trust just to transfer IRA assets to children, assuming there are no estate tax issues.

And I cant think of any solution to get around the current situation....

Since life expectancy is an option, could the individual disclaim being bene of the Trust and allow an older relative to claim it instead?

Sounds like a good reason to sue the attorney who thought of this "plan".

---

But good info to think about. I do have some life policies with Trusts as the Bene and Ive never thought to put a Contingent on them... guess I have some phone calls to make.

 

[Allen Trent]

Since life expectancy is an option, could the individual disclaim being bene of the Trust and allow an older relative to claim it instead?

LOL--nothing ever easy. Sure, the trust beneficiary can disclaim whatever they want, but that will be after the trust has received the funds & paid taxes at higher trust tax rate & not utilizing the 10 year Stretch afforded to individually named beneficiaries. I am not aware of any custodians/carriers permitting the inherited IRA to be held or reporting as a rollover in this situation. I have asked 3 carriers & was told they wont even handle the annual life expectancy RMD payments that would be needed to a trust if they elect other than lump sum in this "post RBD" situation. Even if they would, the trust would have to be OK with keeping a trust open for the 5-12 years to receive the RMDs under life expectancy, paying the lawyer, CPA & higher trust tax rates in the interim.

But good info to think about. I do have some life policies with Trusts as the Bene and Ive never thought to put a Contingent on them... guess I have some phone calls to make.

Life insurance isnt as big of an issue for needing a contingent for back up planning for using a disclaimer. With it being tax free, the beneficiary can always receive the claim money & give it to whoever they want (albeit, could face gift tax issues for doing it, so disclaimer could help).

Biggest use of Disclaimers I see being a good use is(I am sure there are more & not sure why advisors & lawyers are not suggesting disclaimers more):

1. Surviving spouse is named as beneficiary on IRA, NQ annuity or even life insurance & is already in failing health. By receiving these accounts they dont need, puts them in greater position to lose the money to care, etc. Disclaiming & letting it flow to contingent can be decent option

2. high income person already doing well on their own. So, lets say 1 of 3 of the primary beneficiaries fit this & the policy lists 3 children equally, per stirpes. the 1 child that doesnt need the account (or a portion of the account) can disclaim & the per stirpes would put their own children next in line. I did this when my mother passed away late 2019 with about 60% of the IRA value that would have went to me. My 4 children ranging from 13-21 at the time each now have an old school inherited IRA that lets them receive the annual RMDs for the next 60+ years based on their currently much lower tax rate than mine.

PS-- just really pointing out that while the IRS may later deem some of these trust look through items, it doesnt mean carriers will accept. What was more allowed just 2 years ago may not be an option with a carrier/custodian. The info publicized by all the gurus on IRAs points to this, but I have not seen many spell out if the custodian or carrier have adopted these look through options. Hopefully, the trustee could do an inherited IRA with a new custodian to roll the money over & the more aggressive custodian would allow the fund to be split into individual inherited IRAs for the 10 year deferral

 

[Tahoe Ray]

Really no reason for trust to be the primary but the lawyer insisted even though spouse had died & trust was intended for 3 kids to get IRA

How else would the attorney get paid lol?

This is why one and done planning doesn't work. Families change, laws change, and something needs to be addressed.

People don't want to pay for all of that but it doesn't work.

I have no answer to your question since even the IRS doesn't probably know.

Have the CPA file according to best interest and if the carrier isn't accepting, just move the money.

Even a bank account would work out better than a lump sum in most cases.

 

[Allen Trent]

Have the CPA file according to best interest and if the carrier isn't accepting, just move the money.

Even a bank account would work out better than a lump sum in most cases.

agree-- the question becomes can they really "move/roll" the money anywhere without a lump sum tax notice to the trust. IE: are there any custodians that will allow a non-person to open an inherited IRA & if so, will the current place hold the money even release the funds via the rollover method.

crazy stuff & hopefully a unicorn, but I am sure there are more out there for sure, especially more common in 2nd marriages, etc

 

[scagnt83]

IE: are there any custodians that will allow a non-person to open an inherited IRA & if so, will the current place hold the money even release the funds via the rollover method.

Try some of the "alternative asset" IRA custodians. Like the ones who allow real estate or other physical assets. Google it and you will find plenty. They would be your best bet most likely.

Millinium Trust Co., MainStar Trust, Equity Trust, Gold Star, are a few that come to mind.

 

[scagnt83]

What if the Trust disclaims the Bene designation? Then it goes to the Estate and if I remember right, there would be a 5y option to spread out the tax hit.

Of course that only works if the Estate is being split among the Trust Benes... or if the Executor is willing to go along with it... etc.

 

[Allen Trent]

Try some of the "alternative asset" IRA custodians. Like the ones who allow real estate or other physical assets. Google it and you will find plenty. They would be your best bet most likely.

Millinium Trust Co., MainStar Trust, Equity Trust, Gold Star, are a few that come to mind.

agree on that part. j

What if the Trust disclaims the Bene designation? Then it goes to the Estate and if I remember right, there would be a 5y option to spread out the tax hit.

Of course that only works if the Estate is being split among the Trust Benes... or if the Executor is willing to go along with it... etc.

Nope, estate is entity so same rules apply to estate, trust or charity. Plus, estate opens it up to the final bills & creditors