May 23, 2013
Authored by: Kathy Sherby and Stephanie Moll
In the past, the Service has indicated informally that an affirmative direction in a trust that is named as the beneficiary of an IRA would not be respected to limit the consideration of other beneficiaries named in other sections of the trust, but that a negative direction would work. Thus, if the trust created Trust A, Trust B and Trust C after the settlor’s death, and specified that the IRA was to be an asset of Trust A, the Service still required a review of all the beneficiaries of Trust B and Trust C, but if the trust specified that the IRA could not be used to fund Trust B or Trust C, the beneficiaries of those trusts would not be considered in determining whether the trust was a “see through” trust and the measuring life for purposes of the required minimum distributions. However, in PLR 201241017, the Service appears to respect just such an affirmative direction.
In this private letter ruling, the decedent named his revocable trust, Trust T, as beneficiary of his IRA. After the decedent’s death, the trustee set up an inherited IRA in the decedent’s name for the benefit of Trust T. Under the provisions of Trust T, the trust was divided into “IRA Trust Property” and “Remaining Trust Property”, with the IRA Trust Property directed to be distributed to nine individuals.
The trustee of Trust T sought this private letter ruling, proposing to set up nine inherited IRAs, one for the benefit of each of the nine beneficiaries to whom the trustee was directed in the trust to distribute the IRA, and to arrange for trustee to trustee transfers from the inherited IRA for the benefit of Trust T equally to each of these newly established inherited IRAs.
In concluding that Trust T was a “see through” trust for purposes of the required minimum distribution rules, the PLR only considered the nine beneficiaries who were to receive the decedent’s IRA pursuant to the terms of Trust T, and did not mention anything with respect to the beneficiaries of the “Remaining Trust Property.” The Ruling stated that the trustee to trustee transfer to the nine newly formed inherited IRAs did not constitute rollovers allowed only to a surviving spouse and did not constitute distributions from the IRA for the benefit of Trust T. However, since Trust T was the named beneficiary of the IRA, the distribution period for all of the nine beneficiaries from their respective inherited IRAs was based on the life expectancy of the oldest of the nine beneficiaries.