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By Jeremy T. Rodriguez, JD
IRA Analyst

Question:

Hi

Read your column in the Chicago Tribune and have learned a lot.  I have a question I don’t think you have addressed.

I have multiple Roth IRA’s that I converted years ago, paid the taxes and they are continuing to grow.  I am single, have no dependents and have currently listed my estate as the beneficiary.  I have a will that lists the persons and percentages for them to inherit.  Is this the best way for my Roth’s to be distributed or do I need to specify a particular fund to be inherited by a specific individual knowing that each fund may not grow and not make the percentage possible.

Thanks so much for your help.

Sally

Answer:

Dear Sally,

Leaving IRA assets to an estate is usually not the best option when it comes to choosing a beneficiary. That’s because an estate doesn’t have a life expectancy and therefore cannot be a designated beneficiary. Only designated beneficiaries can stretch post-death required minimum distributions (“RMDs”) over their remaining life expectancy. Since you have percentages for each beneficiary to inherit already listed in your will, you should consider simply naming those individuals directly as beneficiaries of your Roth IRAs in the percentages you want them to inherit.

If you keep the estate as the Roth IRA beneficiary, the exact payout period for the estate would depend on your age at death. For example, if you died before you started taking RMDs (i.e., age 70 ½), then the estate (or its beneficiaries) must withdraw all the Roth IRA assets within five (5) years from the date of death. On the other hand, if you died after you had begun receiving RMDs, the estate (or its beneficiaries) could use your age and the Single Life Expectancy Table to determine the RMD timeframe.

In the end, any individual inheriting your Roth IRA assets would be better served by being named directly as a beneficiary instead of inheriting through your estate.

Question:

An individual left his IRA of $250k to his trust.  This individual is now deceased and the trust has become irrevocable.  His surviving spouse is the Trustee.  All the beneficiaries and the Trustee are all in agreement that they would like to terminate the trust and under state laws are very likely able to do so.  My question is, if the trust is terminated, will the IRA that was contained be allowed to rollover into the surviving spouses IRA, or will it have to be distributed somehow?

Thanks for your attention.

Respectfully,

CDD

Answer:

Dear CDD:

Whether the spouse will be able execute a spousal rollover of the IRA assets will depend on the trust language itself. You indicated above that the surviving spouse was a Trustee. Is he or she the sole trustee? Are there any ascertainable standards that restrict the surviving spouse’s rights to the IRA assets? For example, in a 2009 letter ruling, the IRS rejected a surviving spouse’s request to execute a 60-day rollover of funds inherited from a trust. In this case, the trust was the named beneficiary of the IRA and the surviving spouse was the sole trustee. However, the spouse was only entitled to the trust income and distributions were limited to her health, maintenance, education, and support.

On the other hand, if the surviving spouse is the sole Trustee and has unfettered access to the IRA assets, the spousal rollover could be allowed. Therefore, you need to read the trust document carefully and maybe even engage a knowledgeable tax and estate attorney for a review. Keep in mind that state law and federal tax law do not always agree when a trust is changed. If the surviving spouse wants absolute certainty on the tax treatment of a spousal rollover, he or she could request a private letter ruling from the IRS.

https://www.irahelp.com/slottreport/trusts-and-beneficiaries-todays-slott-report-mailbag