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Assigning the right of inherited IRA assets- what are the effects?


Guest Shelton
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Guest Shelton

The RMD regulations state that is a trust is the beneficiary of the IRA, the spouse cannot be treated as the beneficiary of the IRA, even if s/he is the only beneficiary of the trust.

Yet, the code talks about assigning rights, and seems to suggest that is the trust beneficiary assign the right to an individual, the individual will be treated as the beneficiary. Does this means that the individual will be able to move the assets into an inherited IRA in their name and tax ID number?

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Usually this problem is solved by having the beneficary who gets legal title to the IRA to disclaim their interest under IRC 2518 and then follow the inheritance provisions in the custodial agreement to the point where the spouse is the default beneficiary in the event there is no named beneficiary. ( Most custodial accounts name the spouse as default beneficary of a married IRA owner). Sometimes there may be two or more disclaimers before the spouse becomes the default beneficiary. Another way to get the IRA to the spouse is if the spouse is the sole trustee of the trust and sole beneficiary. Under the merger of interest doctrine the trust would be disolved because there is an identical interest between the trustee and the beneficary and the spouse could roll over the distribution to an IRA. Your client needs to review this matter with counsel to determine whether there is a basis for a tax free rollover.

mjb

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