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IRA Owned by a Living Trust


Guest P A Weick
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Guest P A Weick

A recent Ohio state appellate case held that a living trust can be the owner of an Merrill Lynch IRA for state law purposes. We have had several customers ask for this. We have been reluctant to allow it without the unhedged opinion of a tax lawyer we trust that this is not an assignment of the account which could trigger recognition of the income in it. Is this now settled that an IRA can be owned by a revocable living trust? Do other custodians allow this?

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Guest gdburns

Can you cite this case?

I wonder at what stage the court decided that ownership could be by the Trust?

While I see no problem with the Trust owning the IRA after the death of the original owner, I have a problem seeing it as the owner during the contribution stage.

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I agree…that can occur only if the trust is the beneficiary and inherits the IRAs after the IRA owner’s death. It would be interesting to see a ruling that provides otherwise

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Guest P A Weick

1. The case was fought over whether the trust owned the IRA during the deceased's lifetime or not. That determined which beneficiary would take the moneys because the heirs under the will were different from those under the trust. The case is Stephenson vs. Stephenson found on-line at

www.sconet.state.oh.us/rod/newpdf/9/2005/2005-ohio-4358.pdf

2. Good questions all. I have never understood why one wished to transfer ownership to a trust, pre or post mortem. The argument (in Ohio) could be based on an old case, Smyth vs. Cleveland Trust Company, that held the assets in a revocable living trust were not subject to a spouse's right to take outright his or her statutory share of a fixed percentage of assets regardless of the deceased's estate plan; I hasten to add most states hold differently. Or it could be that the lawyer thinks state or foreign spendthrift trust law will provide better protection than otherwise is provided, which seems to me unlikely to work because most states do not recognize any spendthrift protections for the account's initial owner and most have specific statutes to which I think courts would defer in deciding how much creditor protection the account owner or beneficiary had. All I can say is that I have had individuals demand such treatment of their accounts based on their attorney's advice.

3. Which ultimately brings me to my questions: would retitling constitute some form of distribution? And does any other custodian allow this? If so under what circumstances?

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Guest gdburns

This case does not seem to address the very important issues of taxation. It could very well end up that the transfer to the Trust was a taxable distribution plus other issues. Maybe the IRS might disqualify the IRA. I wonder what happened?

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  • 4 weeks later...

I am not a lawyer---this may be why this makes no sense to me whatsoever, mainly because of the issue mentioned by gdburns, and the issue mentioned by the Appellant- i.e. .the beneficiary designation determines who is treated as the beneficiary.......Unless they mean that the trust is the beneficiary, and the assets would be transferred to an inherited IRA in the name and TIN of the trust and the name of the IRA owner, after the IRA owner dies

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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3. Which ultimately brings me to my questions: would retitling constitute some form of distribution? And does any other custodian allow this? If so under what circumstances?

Hi Weick' -I don’t think that was allowed in the case cited, neither would it be allowed by any custodian. If it is determined that the trust is the beneficiary, then only after the IRA owner dies can the IRA be transferred to an inherited IRA in the name of the rust ( and the name of the decedent).

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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