Trust as beneficiary of IRA

[benefitsguru]

The beneficiary of my uncle's IRA is a trust fbo my brother (my brother needs someone to manage the funds or else he will spend them). As trustee of the trust, I want to change custodians. How can I do that without suffering tax consequences? I want the IRA to be at my bank so I can make quarterly distributions to my brother (which I know he will be taxed on when paid). My bank is telling me that the trust can't be the owner of the IRA. Any sight would be greatly appreciated!

[Mike Preston]

Here is an article that may help.

See item 7.

Perhaps your bank is telling you that the trust is somehow drafted improperly?

http://www.forbes.com/sites/advisor/2011/06/28/7-mistakes-with-stretch-iras/#75f4804c2617

[spiritrider]

Are you sure your terminology is correct. The bank is correct that a trust can not be an owner of an IRA, but it most certainly can be the beneficiary of a properly constructed trust as noted above. So exactly what did you ask the bank to do?

[Mike Preston]

Huh? Read the linked article. A trust can certainly be a beneficiary and after death would become the owner.

[benefitsguru]

I want to move my uncle's IRA to my bank. The IRA is with a bank out of town. I'm being told that the trust can't be the owner of the IRA, and since it can't be the owner, I can't open up an IRA at my bank in the name of the trust and have the IRA transferred to my bank. For example, the bank's IRA application is written for an individual to open an IRA.

[Mike Preston]

The bank is free to place restrictions on the IRA's it allows. If it won't allow, for example, hard to value assets then if you have an IRA that has such investments at another institution you would not be able to transfer such investments. Similarly, if it won't allow a trust, as beneficiary, to own an inherited IRA then all you can do is search for a financial institution that will.

You might want to ask your bank for a copy of their IRA beneficiary designation form. If it allows a trust to be designated as a beneficiary you could then ask them what they would do if an IRA owner died that had named a trust as beneficiary.

[spiritrider]

Huh? Read the linked article. A trust can certainly be a beneficiary and after death would become the owner.

Huh? Did you actually read my response? I said a trust can be a beneficiary of an IRA, just not the owner.

[benefitsguru]

Sprintrider - I did read your response, and I totally get that the trust can be a beneficiary of an IRA. That wasn't my question. The issue is who is the "owner" of the beneficiary IRA? The trust? the beneficiary of the trust? the trustee? The bank is asking who is the "owner" of the IRA.

[jpod]

For tax purposes, the way this has to work for tax purposes is that the IRA is titled in some fashion as "IRA FOR BENEFITSGURU'S UNCLE, TRUST FOR BENEFITSGURU'S BROTHER SOLE BENEFICIARY." There is no other individual or entity that could be the "owner" other than the Trust, or Benefitsguru as the Trustee of the Trust. If the Bank doesn't want this piece of business there's not much you can do about it.

[benefitsguru]

Thanks. I appreciate the insight.