Advanced Underwriting Consultants

Question of the Day – June 14

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I am working with a client whose mother recently passed away, leaving a substantial IRA.  The IRA has no named beneficiary.  My client tells me that the IRA asset needs to be transferred to a revocable trust created by her mother.  How can I help get that done?

Answer: When an IRA owner dies, the IRA account is transferred to the named beneficiary.  In the absence of a named beneficiary, most IRA custodians will treat the account as going to the taxpayer’s probate estate.

Just because a taxpayer has created a living trust does not mean that all assets will be controlled by that trust at the taxpayer’s death.  Any asset that is part of the taxpayer’s probate estate must go through the probate process.  The probate process is the state-sanctioned procedure for transferring the taxpayer’s assets to heirs.

During probate, the court names an administrator to pay the decedent’s valid debts and either

  • Transfer assets according to the decedent’s will (testate)
  • Transfer assets according to the relevant state rules (intestate)

If the decedent in this case had a will directing all assets to her living trust, the IRA assets may end up there.  If not, then those named in the will are entitled to the IRA assets.  If there was no will, the decedent’s close kin would be entitled to the asset.

The IRA custodian will likely require a letter from the court providing the administrator the authority to act.  The letter is needed before they will turn over the funds to the executor so that the probate process can begin.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.