Who Is The Beneficiary

[Appleby]

The attached PLR allowed some provisions that are not surprising, such as allowing the underlying beneficiary of the trust to use their life expectancy to calculate post death distribution. However, they made one ruling that seems to contradict with the new RMD regulations, i.e. permitting the underlying beneficiary of the trust to establish the inherited IRA in their name. They ruled:

“(5) that Taxpayer D, as a beneficiary of Trust X, the beneficiary of IRA Y, may direct that her portion of the Trust X assets which consists of her interest in IRA Y be transferred, by means of a trustee-to-trustee transfer, into another IRA set up and maintained in the name of Taxpayer A for the benefit of Taxpayer D, beneficiary thereof ;”

This contradicts Section 1.408-8 Q&A 5, of the new RMD regulations.

Any thoughts?

[Appleby]

Sorry-

Forgot the attachment

[BPickerCPA]

Appleby,

I don't understand your question. The IRA is retitled in the name of the decedent with the beneficiary's name on the account. Why do you think this is contrary to regulation?

[Appleby]

Hi Barry,

In this case, the beneficiary is the trust, not the child (Taxpayer ‘D’). Usually, the IRA would be established in the name of the deceased and FBO the beneficiary (in this case Trust ‘X’). However, in the section highlighted, it appears the IRS is allowing one of the beneficiary of the trust, to establish the inherited IRA in her name (along with the deceased).

Prior to the new RMD regulations being issued last year, there were several PLRs issued that permitted a spouse to establish the IRA in his/her name and tax ID number, when the beneficiary was either a trust or estate that named the spouse as the sole underlying beneficiary who had sole discretion over the disposition of the assets. This was never permissible for a non-spouse beneficiary. When the new RMD rules were issued, Treasury Regulation 1.408-8 Q&A 5 seemed to make it clear that this is not an option, even for a spouse. Yet, the ruling in the PLR seems to be making this allowance for Taxpayer D, who is a non-spouse.

[BPickerCPA]

Appleby,

I think you're confusing two issues. In the PLR, the trust assigned the right to the distribution to D, hence the retitling. There is nothing sinister about this. The assignment and retitling goes on all the time. For example, if the estate was the beneficiary and you had a ten year payout, most likely the estate would assign the right to the IRA to an individual so as not to stay open for ten years.

This would not give the individual the right to use their own life expectancy; that's an entirely different issue. It also has nothing to do with spousal rollovers, also an entirely different issue.

Barry

[Appleby]

Ok-

I understand the titling issue- but ultimately, whose tax ID number is the tax reporting done under--- Taxpayer D or the trust?

[BPickerCPA]

Once the benefits are assigned out from the trust to D, D's SSN is the reporting number.