Post a Comment On: CPA at Law

As I discussed in a previous post, a trust may be named as the beneficiary of a retirement plan upon the plan owner's death. There are complications and disadvantages of doing so, but there are potentially important reasons to name a trust as a retirement plan beneficiary. For example, naming a supplemental needs trust created for an individual with special needs as a retirement plan beneficiary, instead of the individual, will prevent the individual from ceasing to qualify for means-tested public assistance due to inheriting the retirement account.

Upon the termination of the trust that is the named beneficiary of a retirement account, any amounts remaining can be passed to the remainder beneficiaries of the trust intact, meaning in a manner that is not treated or reported as a taxable distribution from the retirement account. Instead, the transfer is treated as a plan-to-plan transfer to individual accounts established for the remainder beneficiaries of the trust.

In my experience, the custodian of the retirement account often requests a reference to legal authority that would allow the transfer of the retirement account from a trust account to separate account(s) in the individual name of the trust beneficiaries. IRS private letter ruling 200750019 is one such authority wherein the IRS permitted a trust that was a retirement plan beneficiary to be bypassed and separate, inherited IRA accounts established for the trust beneficiaries. While not binding, this ruling indicates that the IRS regularly permits this practice and can help assure a custodian that this practice is permissible.