Photo by Jessica Lewis on Unsplash

Question:

A Trust Schedule A of Assets included an IRA and Roth account with beneficiary designations. The grantor died (of Covid) before titling all assets to the trust. The trustee petitioned the court to allow titling all schedule A assets to the trust. The beneficiaries have requested the IRA and Roth be assigned to the trust. Is there a ruling anywhere that establishes titling such accounts to the trust?

Response:

Probably not, though it could depend on your state. The trust schedule A listing assets assigned to the trust certainly expresses the grantor’s intent, but doesn’t effectuate the transfer. The beneficiary designations on the IRA and Roth are controlling. It’s possible that the beneficiaries could disclaim their interests. A disclaimer is, in effect, a beneficiary’s refusal to accept property from an estate. Once a disclaimer is filed, the property passes as if the beneficiary had died before the grantor. If no contingent beneficiaries were named on the IRA and Roth, the accounts would be treated as if there were no beneficiaries had been named and would pass into the grantor’s estate. If the grantor’s will directed his or her estate to pass to the trust, a so-called “pour over” will, this ultimately would effect the transfer to the trust.

The beneficiaries should be aware that depending how the trust is written, successfully transferring the IRA into it may well result in accelerated withdrawals. Under the SECURE ACT, most beneficiaries of IRAs have 10 years after the death of the owner to withdraw the funds and pay the deferred taxes (with some beneficiaries being able to do so over their lifespans). Estates and many trusts must make the withdrawals over five years, potentially pushing the recipients into higher tax brackets.

Related Articles

Can Tax Payments be Part of Medicaid Spend Down? How Do I Fund My Revocable Trust? Treatment of Inherited IRAs