Life and Death Planning for Retirement Benefits

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284 Life and Death Planning for Retirement Benefits
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 .
See Form 5.4, 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 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 . 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 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