Funding a Revocable Trust with an IRA

[Tax Sleuth]

A wife's husband recently died. He had set up a "grantor" trust about a year before his death. He had owned an IRA account. His trust document states that his wife is the beneficiary of his IRA. My understanding from my research is you can fund a revocable living trust with your IRA assets by making the primary and/or secondary beneficiaries of these types of assets changed to the trust. However, I am not sure how this is accomplished. Does this have to be done through the financial institution that holds the IRA account or can the trust document itself achieve this desired result? Furthermore, in this situation are the assets of the IRA considered transferred to the revocable trust while the grantor is alive and cause them to be subsequently recorded on Schedule G of Form 706?

[momona]

You refer to funding a revocable trust with an IRA. I am assuming that the revocable trust you are referring to is the spouse's. The beneficiary needs to ask the bank their rules for putting assets into a trust.

Form 706 is an estate return. Did this person die with that much in assets??

[Roland Slugg]

Sounds to me like someone is confused. There would be no point in transferring an IRA into a RLT ... even if that was allowed, which it isn't. An IRA's trustee must be a bank, credit union or similar institution that is regulated by the State in which it was formed. See Code §408(a)(2) and 408(n).

[momona]

I am confused. The title gave me the impression that the IRA was going to be taken and in turn the funds were going to be put into an account that had a trust name.

[Burke]

That would cause the entire IRA to be taxable to the wife if she was named bene. The beneficiary, designated on the IRA application with the institution that issued it, is the one who gets the funds. If he named the trust as beneficiary on that application, then that is where the funds go. (Of course, the IRA could have been transferred or rolled over in the past from one institution to another, and the beneficiary could also have been changed along the way.) What matters is what it was when he died. If there was no named beneficiary, it goes to the client's estate at his death and would be controlled by the will, which could have had a pour-over clause to put everything in the trust. If the IRA contract named the wife, then it goes to her and she has certain options.

The beneficiary of the trust can be designated by the trust document, but it cannot change the beneficiary which was designated on the IRA at the owner's death. The same holds true for any life insurance policy or TOD/POD designation. The trust has no control over any asset until it is titled in the trust's name or paid to it as the beneficiary. So if he did not change the beneficiary of his IRA to the trust while he was living, it cannot be done now. His trust has no authority to do so.