Life and Death Planning for Retirement Benefits

Chapter 6: Leaving Retirement Benefits in Trust

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payable to the estate, because the plan will normally pay benefits only in the form of a lump sum. The transfer procedure is most useful for IRAs, not other types of plans. Do NOT confuse these transfers with the nonspouse beneficiary rollover to an inherited IRA ( ¶ 4.2.04 ).

See Form 5.4, Appendix B , for how to request such a transfer.

B. Examples of fiduciary transfers of inherited retirement plans . Here are some common examples of situations in which such transfers are called for: Foster Example: Division into marital and family trusts. Foster dies, leaving his IRA to the Foster Revocable Trust as beneficiary. The Foster Revocable Trust provides that, upon Foster’s death, the trustee is to divide all assets of the trust into two separate trusts, the Marital Trust and the Family Trust, pursuant to a fractional formula. All retirement benefits are to be allocated to the Marital Trust. The trustee instructs the IRA provider to change the name of the owner of the inherited IRA (see ¶ 4.2.01 ) from “Foster Revocable Trust, as beneficiary of Foster, deceased,” to “Marital Trust, as beneficiary of Foster, deceased.” The trustee has transferred the IRA from the Foster Revocable Trust to the Marital Trust. Stanley Example: Trust termination upon spouse’s death. Stanley names his testamentary trust as beneficiary of his IRA. The trust provides that, after Stanley’s death, the trustee is to pay income of the trust to Mrs. Stanley for life. On her death, the trust is to terminate, with the principal of the trust passing to Stanley’s son Yishai. The trustee takes annual RMDs from Stanley’s IRA computed using the life expectancy of Mrs. Stanley, which is 18 years, as the ADP ( ¶ 6.2.01 ). Mrs. Stanley dies 12 years later. It is now time for the trust to terminate. There are still six years left in the ADP. The trustee instructs the IRA provider to change the titling of the inherited IRA from “Stanley Testamentary Trust, as beneficiary of Stanley, deceased,” to “Yishai, as successor beneficiary of Stanley, deceased.” The trustee has transferred the IRA from the testamentary trust to the trust’s remainder beneficiary. Noah Example: Division among multiple children. Noah dies, leaving his IRA to the Noah Family Trust as named beneficiary. The trust provides that, upon Noah’s death, the trust is to be divided into three equal shares, one for each of Noah’s sons Shem, Ham, and Japheth. Shem and Ham are to receive their shares outright; Japheth’s share is to be held in trust for him for life, with remainder outright at Japheth’s death to Japheth’s issue, if any, otherwise to Shem and Ham outright. Upon learning of Noah’s death, the IRA provider titled the IRA “Noah Family Trust, as beneficiary of Noah,” and the trust’s taxpayer identification number was attached to the account. See ¶ 4.2.01 . The trustee now instructs the IRA provider to divide the IRA into three equal accounts, and to change the titling of two of those accounts. One account is to be retitled “Shem, as beneficiary of Noah,” and the other “Ham, as beneficiary of Noah.” The trustee has transferred two thirds of the IRA from the trust to these two sons. The Social Security numbers of Shem and Ham will be associated with those two inherited IRAs. The third inherited IRA created out of Noah’s IRA stays in the trust (to be held for the life benefit of Japheth), so its titling (and associated taxpayer identification number) do not change for now. C. PLRs approving these transfers. Many private letter rulings have approved the transfer of inherited IRAs and other plans from the trust named as beneficiary of the plan to the individual trust beneficiaries. PLR 2001-31033 (Rulings 5, 6, and 7) is typical. This ruling allowed the transfer of “IRA Y” from a terminating trust to the participant’s children, C and D. From the ruling: “The provision of Trust X which provides for its termination does