The IRA names the Marital Trust as beneficiary. The Trustee wants the IRA to "Rollover" the IRA into the name of the surviving spouse. Fine. The result is a 1099R from the IRA to the Trust; and then a 5498 from the new IRA to the Spouse. This creates an issue with reconciliaitng the two tax payer ID numbers, the 1099 uses the Trusts taxpayer ID number and the 5498 will use the Socical Security number of the surviving spouse. Does anyone have any other solutions or avenues to consider? Other thoughts or input welcome.

Your fact pattern seems to be missing some details. It sounds as if you are stating that the Trust is attempting to change the ownership of the IRA from the trust to an actual individual.

Assuming that tax payer died and the trust was named beneficiary of the IRA.

Assume the trust was 1) Irrevocable at death, 2) valid under state law, 3) had spouse indentified as beneficiary under this trust instrument and 4) Trust documents were provided to the IRA custodian:

This allows for the trust (while not a natural person) to be treated as a 'designated beneficiary' of the tax payer.

Now, this trust wants to assign the IRA to the spouse. This would appear to constitute a full taxable distribution to the trust. An IRA is then created for the spouse and funded with a (presumably) large deposit causing IRA funding limits to be exceeded. In other words, I do not believe this to be a rollover, but a change of ownership (which effectively constitutes a series of transactions).

I believe this is what the transaction is to be based on. See bolded text.

From the Preamble to the Final Regulations under 401(a)(9):

Election of Surviving Spouse to Treat an Inherited IRA as Spouse's Own IRA
These final regulations generally retain the clarifications in the 2001 proposed regulations regarding how and when a surviving spouse of a deceased IRA owner can elect to treat an IRA inherited by the surviving spouse from that owner as the spouse's own IRA. The 1987 proposed regulations provided that this election is deemed to have been made if the surviving spouse contributes to the IRA or does not take the required minimum distribution for a year under section 401(a)(9)(B) as a beneficiary of the IRA. Under the 2001 proposed regulations, this deemed election is permitted to be made only after the distribution of the required minimum amount for the account, if any, for the year of the individual's death. These final regulations provide that the election can be made at any time after the IRA owner's date of death, while clarifying that the minimum required distribution for the calendar year of the IRA's owner's death is determined assuming the IRA owner lived throughout the year. These regulations also clarify that the surviving spouse is required to receive a minimum distribution for the year of the IRA owner's death only to the extent that the amount required was not distributed to the owner before death.

Some commentators raised concerns about the other clarifications in the 2001 proposed regulations. The 2001 proposed regulations clarified that a deemed election is permitted only if the spouse is the sole beneficiary of the account and has an unlimited right to withdraw from the account. This requirement is not satisfied if a trust is named as beneficiary of the IRA, even if the spouse is the sole beneficiary of the trust. As explained in the 2001 preamble, these clarifications make the election consistent with the underlying premise that the surviving spouse could have received a distribution of the entire decedent IRA owner's account and rolled it over to an IRA established in the surviving spouse's own name as IRA owner. If the spouse actually receives a distribution from the IRA, the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouse's own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneficiary of the IRA owner. Further, if the distribution is received by the spouse before the year that the IRA owner would have been 70½, no portion of the distribution is a required minimum distribution for purposes of determining whether it is eligible to be rolled over by the surviving spouse


I believe the assupmtion in the bolded statement is that if the spouse qualifies as a pass thru beneficiary of the IRA, through the marital trust then he/she could rollover the funds into a IRA in his/her own name. JEVD.

jevd's post is consistent w/ several PLR's w/ similar fact patterns, for example: http://benefitslink.com/IRS/plr200242044.pdf

The ideal would be to file for a PLR, however that has cost. Based on a couple articles I found, a number of PLR's have approved this transaction; however, you can't rely on PLR's issued to someone else (but it at least shows the service's general thinking).


To the original question:

In general in preparing tax returns w/ a situation like this, one tactic would be to attach a letter to each TIN's return explaining what occurred along w/ a copy of the two documents in question. This way when the service's computer tries to match the 1099-R to taxes paid, a human can review the file, read the letter and determine that taxes were not illegally avoided. Of course it has the risk of raising a red flag, but better than not disclosing it.

And to agree with jevd the IRS goes on further in publication 590 - the retirees bible , " Individual Retirement Arrangements ( IRAs ) " for use in preparing 2007 Returns on page 20 under " What if You Inherit an IRA ? " :

" If you inherit a traditioal IRA , you are called a beneficiary . A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies . "

" Inherited from spouse . If inherit a traditional IRA from your spouse , you generally have the following three choices . You can :

1. Treat it as your own IRA by designating yourself as the account owner .

2. Treat it as your own by rolling it over into your traditional IRA "

The IRS goes on further on page 21 to say ,

" Treating it as your own . You will considered to have chosen to treat the IRA as your own if :

* Contributions ( including rollover contributions ) are made to the inheirted IRA , or

* You did not take the required minimum distribution for a year as a beneficiary of the IRA . "

" You will only be considered to have chosen to treat the IRA as your own if :

* You are the sole beneficiary of the IRA , and

* You have an unlimited right to withdraw amounts from it . "

The IRS goes on further to state :

" Inherited from someone other than spouse . If you inherit a traditional from someone other than your spouse , you cannot treat the the inherited IRA as your own "

The above is the reason I have given my wife specific instructions in the event of my death to " rename " the deferred accounts in her own name as soon as possible to remove my name from future records . And to specificly designate her own named beneficiary as soon as possible after having done that . And I will do the same with her accounts in the event of her death .

And masteff is correct : " ... attach a letter to each TIN's return explaining what occured along w / a copy of the two documents in question ... better than not disclosing "

If the IRS wants to debate this issue within themselves and issue an opinion , they can . Myself . I have found when I carried a issue from my local IRS office to my regional IRS office to the Washington , D.C. IRS office , neither office could or would not issue a written opinion to satisify me or themselves so I told them I was going to file the return as I saw fit and kept all the correspondence with that return and haven't heard back several decades later .

FWIW-

I don't think the references to the preamble to the final regs or Pub 590 are all that relevant. I think they are talking about determining the designated beneficiary for purposes of determining minimum distribution requirements, and that's not the issue here; the issue is "can a distribution to a trust be paid out to the spouse and rolled over?"

The good news is that the PLR does allow a rollover in a similar situation, but it's worth noting that 1) the PLR specifically says it is relying on the old 1987 final regs, and 2) the spouse was also the sole surviving co-grantor of the trust and had complete control over the trust. In the case presented here, we are told "The Trustee wants the IRA to "Rollover" the IRA into the name of the surviving spouse." We don't know if the trustee is the spouse or not; the wording leads me to believe it's not. I'm not 100% sure how important that is but I do think it is significant.

The bottom line is that there are enough concerns for me to conclude that this is far from a slam dunk, and the result could be as ERISAnut described early on - a taxable distribution to the trust, and an ineligible rollover to the IRA. I would either not do it or get a PLR.

(If there are other, more recent PLRs I'd love to see them. I'm not saying for sure that it can't be done, but I just don't see the cites as that convincing.)

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edited to add italics

If it helps your analysis... the OP states it's a marital trust, which would generally imply the surviving spouse is a co-grantor. But I do agree the PLR is dated. Here are a couple newer ones:
http://www.irs.gov/pub/irs-wd/0644028.pdf
http://www.irs.gov/pub/irs-wd/0724032.pdf
http://www.irs.gov/pub/irs-wd/0807026.pdf

What seems to matter most is being co-grantor and sole beneficiary of the trust and having unrestricted right to distribute proceeds of the trust to oneself as beneficary of the trust.

masteff, thanks for taking the time to post those newer PLRs. I agree with your analysis ("What seems to matter most is being co-grantor and sole beneficiary of the trust and having unrestricted right to distribute proceeds of the trust to oneself as beneficary of the trust.")