Can a trust establish an IRA?

[Kathy]

I know, I know. The “I” in IRA stands for individual. I have told that to clients a million times - no matter what the attorney who drafted your trust tells you, you can't "transfer" the IRA to the trust (before your death) without creating a taxable distribution. I have always thought this to be the gospel according to the IRS (Treasury, Congress, whom ever...)

But, I have recently had 2 different clients tell me they read somewhere (where they can't remember) that you can move your IRA to your trust prior to your death without causing a taxable transaction.

What have I missed now?

As usual, I am thanking you in advance for your assistance.

Kathy

[Dave Baker]

Betcha they're thinking of the recently re-proposed regulation re minimum distributions ... IRS used to say that naming a revocable trust as a BENEFICIARY caused trouble when the IRA owner turned 70-1/2 because a trust isn't a real person and hence there's no basis for using the "joint" life expectancy of the IRA owner and another real person when calculating minimum distribution amounts at and after age 70-1/2 ... but then IRS backed down and said that you could look through the trust to see who the real person is, who's the beneficiary of the trust, even if the trust is not "irrevocable" already (while the IRA owner is still alive).

I don't think there's any way a trust can be the owner of an IRA, though it can be named as the beneficiary after the IRA owner's death (at which time, I suppose you could think of the trust as the new "owner" in a sense).

[John Olsen]

Kathy,

They may be thinking of legislation currently in the House which will permit a living IRA accountowner to GIFT her IRA to a Charitable Remainder Trust without triggering tax to the donor. (I SURE hope it passes. We NEED it!)

Or it may be the same kind of "urban legend" muleheadedness which compels some folks, each year, to buy into schemes like the "Constitutional Trust", because they've HEARD that they can get away with it.

------------------

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

[BPickerCPA]

Kathy,

Let me add my vote to the others, that you haven't missed a thing.

[Guest P A Weick]

Even in the Roth arena the Regs (1.408A-2 Answer 1) only allow "an individual" to "establish a Roth IRA". If you could transfer to your revocable trust I cannot see what the advantage would be in having the trust own the IRA as opposed to naming the trust as the IRA's beneficiary. No probate would be involved, and taxes and creditors rights (except maybe in Alaska) would be the same.

------------------

[Kathy]

Thanks for your responses. Let me add that this has come up with respect to establishing Roth IRAs. I'm still trying to peg down the exact article. I'll let you know.

[Guest ezollars]

There was some limited discussion by some (I would say overly) aggressive planners back when Roth IRAs first came out about using an irrevocable trust as a beneficiary to attempt to "gift" the Roth out of the estate. But, as others have noted, the regulations came down against this theory.