IRA death distributions to trust-beneficiary

[Guest ERISA_kid]

IRA owner creates a revocable trust and names the revocable trust as beneficiary of his IRA. IRA owner dies. Surviving spouse is sole trustee of the trust-beneficiary. Through an apparent misunderstanding, she ends up signing distribution forms requesting $600K be transferred to a non-retirement account established for the trust even though she intended to have the original IRA transferred to inherited IRAs established for the benefit of the trust-beneficiary (in order to minimize the required minimum distributions). Distribution request is processed by the IRA custodian. The following year, she receives a 1099-R and her CPA discovers the discrepancy. IRA custodian is unwilling to reverse the distribution because the trustee signed a distribution form.

Any suggestions on how to reduce or eliminate the income tax liability? I suggested exploring the possibility of rolling over the distribution proceeds into the spouse's own IRA by requesting a hardship exception to the 60-day rollover. It is my understanding that if the surviving spouse is the sole beneficiary and sole trustee of the trust-beneficiary, she may be able to "look through" the trust for purposes of rolling over the death distribution into her own IRA (assuming she gets the hardship exception to the 60-day rollover from the IRS). If you have any ideas or suggestions, please let me know

[Bruce Steiner]

See my article in the October 1997 issue of Estate Planning on spousal rollovers where the spouse is not the named beneficiary. I recently obtained a favorable ruling in a similar case.

[Appleby]

Bruce,

By recent, do you mean after the Final RMD regs was issued? If it’s a PLR could you provide us with the number?

From my understanding of the Final RMD regulations, not even a spouse is allowed to rollover the assets to his/her IRA own IRA when a trust is the beneficiary...ref Treas. Reg. 1.408-8, A-5

…The “look-thought” or “see-though” availability only allows the underlying (oldest) beneficiary of the trust to use their life expectancy to calculate RMD amounts, if the trust meets certain requirements (Treas. Reg. 1.401(a)(9)-4, A-5).

ERISA_kid… I am curious as to what “hardship” the spouse would claim…mistake or ignorace of the rules may not cut-it…still , it does not hurt to try. Please keep us posted on that