RMD Question Regarding Trusts

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Topic Author
Zeno
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RMD Question Regarding Trusts

Post by Zeno »

Dear BH:

I'm writing to inquire if I need to be worried about RMD's in the following scenario.

Background

DW is the beneficiary of a trust that was created by her maternal grandfather for the benefit of DW's mother. DW's mother is 85 years old.

Once a year we get a financial statement from the national bank, acting as trustee of the trust. The statement is addressed to DW at our home address, but otherwise the financial statement provides the name of the trust, the bank's address, the notation "TUIA dated [a specific date decades ago]", then "FBO [name of DW's mother]." I understand all of this (at least I think so) except the "TUIA" notation.

I believe the account is an IRA, but that isn't exactly clear.

The financial statement recounts, in accordance with IRS Form 5498, that the bank will provide the IRS with certain information, including whether the "IRA owner must satisfy a 2022 RMD." It goes on to say the following: "If you are required to take a RMD, [the bank] will notify the IRS that you are required to withdraw a RMD by December 31, 2022, but that amount will not be reported. For non-inherited IRA's only, [the bank], upon the IRA owner's request, will provide you with a calculation of your RMD amount."

Aside from these annual financial statements, we have never received any tax document for this account.

Question(s)

Here is/are my question(s):

Should DW be worried about a RMD being due on this account? Let's assume that it is an IRA held in a trust account FBO DW's mother and with DW as a beneficiary. Presumably the tax statements go to DW's mother, who as noted is 85. I can't tell if this is an "inherited" IRA per the notation from the bank above. And are IRA's held in trust accounts in such a scenario subject to RMD? Is it possible that DW's mother should have been pulling RMD's out of this account for the past 12 to 15 years but never has? From the bank's notation, it seems as though the bank is absolving itself of any duty itself to pull the RMD (if required) despite the fact that it is the trustee, but instead is merely informing the IRS and IRA owner of that potentiality.

I recognize that we could start calling the relatives about all of this, but for various reasons (DW is a beneficiary; DW's mother is elderly; etc.) we don't want to be appear thoughtless or insensitive. And I'm not certain if we could call the bank to make some simple inquiries given that DW is merely a beneficiary.

Thank you!
Last edited by Zeno on Mon Jan 24, 2022 11:12 pm, edited 1 time in total.
Alan S.
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Re: RMD Question Regarding Trusts

Post by Alan S. »

Did the trust perhaps inherit from DW's spouse? While there could be other inherited assets in the trust, the 5498 form indicates that an inherited IRA is among them.

I think your concern about delinquent RMDs is well founded. Unless the 5 year rule applies, and that is unlikely, the bank as trustee of the trust should be receiving annual RMDs, other than in 2020 when RMDs were waived. "TUIA" may stand for "trust under irrevocable agreement".

Another factor in determining the proper RMD is whether the trust is qualified for look through or not. The bank should know that since they are the trustee. RMDs are generally higher if the trust is not qualified, or the 5 year rule would apply if the IRA owner passed prior to their RBD.

You should press the bank for more info to confirm the missing facts.
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celia
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Re: RMD Question Regarding Trusts

Post by celia »

Zeno wrote: Mon Jan 24, 2022 7:45 pm I'm writing to inquire if I need to be worried about RMD's in the following scenario.
No. Just ignore them.
DW is the beneficiary of a trust that was created by her maternal grandfather for the benefit of DW's mother. DW's mother is 85 years old.
Based on this, DW's mother was born in 1936. Grandfather was therefore born in 1916 or earlier. IRAs didn't start until 1975 when grandfather would be at least 59 and the max you could contribute in those years was only $1,500.

I was a trustee for someone born in 1918 who had had an IRA for the last few years he worked. But after several years of withdrawing RMDs of $200 or so, the entire account value of $4,000 or so was more of a nuisance, so he withdrew the rest and called it a day.
Once a year we get a financial statement from the national bank, acting as trustee of the trust. The statement is addressed to DW at our home address, but otherwise the financial statement provides the name of the trust, the bank's address, the notation "TUIA dated [a specific date decades ago]", then "FBO [name of DW's mother]." I understand all of this (at least I think so) except the "TUIA" notation.
All the trusts I have seen have the date the trust was created as part of the trust name. I have seen:
<trust> dated mm/dd/yyyy
<trust> UTD mm/dd/yyyy, which I assume means Under Trust Dated ...

Alan's suggestion of:
<trust> "TUIA" may stand for "trust under irrevocable agreement"
sounds quite likely.

The financial statement recounts, in accordance with IRS Form 5498, that the bank will provide the IRS with certain information, including whether the "IRA owner must satisfy a 2022 RMD." It goes on to say the following: "If you are required to take a RMD, [the bank] will notify the IRS that you are required to withdraw a RMD by December 31, 2022, but that amount will not be reported. For non-inherited IRA's only, [the bank], upon the IRA owner's request, will provide you with a calculation of your RMD amount."
Form 5498 is sent to the IRS when contributions or Roth conversions/rollovers are put into the IRA. Unless DW's mother has earned income, is there anyone else still working who would be helping fund the trust using an IRA? If grandfather had an IRA, after he died, no-one would be able to convert it.

The text you supplied just sounds like boilerplate printing. Was it printed out with the same font and ink like the other personal info (like DW's name and address) was?
Or does it look like it was printed as part of the stationary (like the bank name and logo)?
Or does it appear on each sheet (if more than one sheet was sent)?
Is it possible that DW's mother should have been pulling RMD's out of this account for the past 12 to 15 years but never has?
Anything is possible, but an IRA still existing is not likely, as I reasoned above. As a residual beneficiary, did your DW receive a copy of the trust and list of original assets soon after her grandfather died? [She is entitled to a copy of the trust, but not necessarily a list of assets. However, since they are sending her an annual accounting, they might be willing to share what the trust assets are.] If she didn't get a copy of the trust or doesn't know where it is, she should ask the trustee for a copy and read it. She should also ask them if any assets are IRAs, since you are concerned with RMDs that might not have been taken.

When you find out, please update us.
Topic Author
Zeno
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Re: RMD Question Regarding Trusts

Post by Zeno »

Alan S. wrote: Mon Jan 24, 2022 10:15 pm Did the trust perhaps inherit from DW's spouse? While there could be other inherited assets in the trust, the 5498 form indicates that an inherited IRA is among them.

I think your concern about delinquent RMDs is well founded. Unless the 5 year rule applies, and that is unlikely, the bank as trustee of the trust should be receiving annual RMDs, other than in 2020 when RMDs were waived. "TUIA" may stand for "trust under irrevocable agreement".

Another factor in determining the proper RMD is whether the trust is qualified for look through or not. The bank should know that since they are the trustee. RMDs are generally higher if the trust is not qualified, or the 5 year rule would apply if the IRA owner passed prior to their RBD.

You should press the bank for more info to confirm the missing facts.
Alan S., thank you for this sage advice. It sounds as if I have some more homework to do.
Topic Author
Zeno
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Re: RMD Question Regarding Trusts

Post by Zeno »

celia wrote: Tue Jan 25, 2022 4:51 am No. Just ignore them.
This is very reassuring; thank you, celia.
celia wrote: Tue Jan 25, 2022 4:51 am Based on this, DW's mother was born in 1936. Grandfather was therefore born in 1916 or earlier. IRAs didn't start until 1975 when grandfather would be at least 59 and the max you could contribute in those years was only $1,500.

I was a trustee for someone born in 1918 who had had an IRA for the last few years he worked. But after several years of withdrawing RMDs of $200 or so, the entire account value of $4,000 or so was more of a nuisance, so he withdrew the rest and called it a day.
That's interesting; thank you.

This account has mid six figures in it, and per DW the proceeds of the account will be distributed among herself and her three siblings when MIL passes (i.e., divided into four).
celia wrote: Tue Jan 25, 2022 4:51 am All the trusts I have seen have the date the trust was created as part of the trust name. I have seen:
<trust> dated mm/dd/yyyy
<trust> UTD mm/dd/yyyy, which I assume means Under Trust Dated ...

Alan's suggestion of:
<trust> "TUIA" may stand for "trust under irrevocable agreement"
sounds quite likely.
The annual statements DW receives do include a specific date (month/date/year) in the TUIA line, with the "year" as "1980." I wasn't certain if it was the date of death or the date the trust was created; I assume the latter.

Thanks to you and Alan for explaining what TUIA likely means.
celia wrote: Tue Jan 25, 2022 4:51 am Form 5498 is sent to the IRS when contributions or Roth conversions/rollovers are put into the IRA. Unless DW's mother has earned income, is there anyone else still working who would be helping fund the trust using an IRA? If grandfather had an IRA, after he died, no-one would be able to convert it.

The text you supplied just sounds like boilerplate printing. Was it printed out with the same font and ink like the other personal info (like DW's name and address) was?
Or does it look like it was printed as part of the stationary (like the bank name and logo)?
Or does it appear on each sheet (if more than one sheet was sent)?
MIL (DW's mother and the FBO of the trust) was a SAHM her entire life. FIL (DW's father) retired about 30 years ago. I'm quite certain that no further contributions were made to the trust after the passing of DW's grandfather but will confirm that. MIL never had earned income, and it is highly unlikely that another would have made contributions to it in the past.

Now that you have explained it, I'm also certain that this is not a potential Roth conversion scenario.

If I am now understanding the situation correctly it likely just boils down to any potential third party with earned income who would have made contributions to the account after the grandfather's passing; I'm certain the answer to that is negative but will endeavor to verify.

It is somewhat puzzling to me that the account has mid six figures in it, given that IRA's weren't created until 1975; then again, on reflection, that almost certainly suggests the trust's original assets were not IRAs (or if an IRA snuck in there, it was likely miniscule in amount, as you note). On reflection, this is almost certainly a simple trust/inheritance scenario, with RMD considerations highly unlikely. In my mind I've most likely turned a simple inheritance matter into a major financial detective case unnecessarily.

The cited text is clearly boilerplate now that you have explained it. This looks like a typical Vanguard statement (but it is from a national bank, not Vanguard). There is nothing personalized about it. No cover letter. Everything is in the same font on every page. The cited text appears on the back side of page 2 in the midst of other disclaimers and tax discussions.
celia wrote: Tue Jan 25, 2022 4:51 am Anything is possible, but an IRA still existing is not likely, as I reasoned above. As a residual beneficiary, did your DW receive a copy of the trust and list of original assets soon after her grandfather died? [She is entitled to a copy of the trust, but not necessarily a list of assets. However, since they are sending her an annual accounting, they might be willing to share what the trust assets are.] If she didn't get a copy of the trust or doesn't know where it is, she should ask the trustee for a copy and read it. She should also ask them if any assets are IRAs, since you are concerned with RMDs that might not have been taken.

When you find out, please update us.
DW does not have a copy of the trust. The annual financial statements just list a garden variety of funds that again, when totaled, come to the mid six figures.

I understand my homework and resulting decision tree are as follows.

1. DW should ask the bank (the trustee) for a copy of the trust and the list of original assets in the trust when her grandfather passed.

2. If any of the original assets were IRAs (unlikely, as you note) then there could be RMD considerations, but more research would be required.

3. If all of the original assets were not IRAs then there are no RMD issues.

Again, a thousand thanks.
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celia
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Re: RMD Question Regarding Trusts

Post by celia »

Zeno wrote: Tue Jan 25, 2022 7:08 am If I am now understanding the situation correctly it likely just boils down to any potential third party with earned income who would have made contributions to the account after the grandfather's passing; I'm certain the answer to that is negative but will endeavor to verify.
After an IRA owner dies, no-one can add to it or convert it, except the spouse, if they first re-title the account as their own.


Why don't you look for grandfather's birthdate? If he was born before 1910, the chances he started an IRA at 65 is almost null.

https://www.familysearch.org/en/
(You need to register to do searches, but it's free.)
Looking for his death certificate is a good place to start. Calling MIL is another idea. Or look for him in the 1940 census which will give his age. Your MIL should be listed with him as she was about 4 at the time.
Alan S.
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Re: RMD Question Regarding Trusts

Post by Alan S. »

We are not concerned with excess contributions here, rather RMDs that were not distributed from the IRA to the trust, presuming that there is actually an IRA held by the trust. Form 5498 will show the year end balance each year and provide a general idea how large the RMDs would be based on the age of the oldest trust beneficiary, your MIL.

1980 could either be the year the trust was drafted or the year it became irrevocable due to the death of the trustor. MIL would ordinarily be able to recall the year of death. In this particular case, it sounds like the bank is not only the trustee of the trust, but also the IRA custodian. In other words, they would be issuing a 5498 to the IRS and themselves as trustee of the trust. As the IRA custodian, their requirements are limited, but as the trustee of the trust they are negligent for ignoring the RMD requirements that apply to the trust.

The IRS has never required beneficiary RMDs to be reported to beneficiaries as they are for IRA owners. In other words, Box 11 and 12 is not normally completed after the owner passes. Therefore, without custodian assistance in determining beneficiary RMDs, the IRS has defaulted to non enforcement of beneficiary RMDs. Perhaps that is why Celia indicated that the RMD issue can be ignored if the trust is the beneficiary of an IRA, however the proper RMD is technically still required. Further, the IRS does not pursue decedents for missed RMDs, nor beneficiaries of those decedents unless perhaps the IRA was large enough and an audit disclosed other major tax issues.

It will probably be difficult to get any info from the bank without at least having a POA from MIL.
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Lee_WSP
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Re: RMD Question Regarding Trusts

Post by Lee_WSP »

Your wife is a successor beneficiary. She is receiving these reports because as a person with an interest with the trust, the trustee is sending you the information.

The trustee is responsible for rmds, taxes, etc.

If your wife ever becomes trustee or primary income beneficiary, then you need to worry about this. Until then, it's not your problem yet and you have no power to do anything about it anyway.
Topic Author
Zeno
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Re: RMD Question Regarding Trusts

Post by Zeno »

celia wrote: Tue Jan 25, 2022 8:18 am
Zeno wrote: Tue Jan 25, 2022 7:08 am If I am now understanding the situation correctly it likely just boils down to any potential third party with earned income who would have made contributions to the account after the grandfather's passing; I'm certain the answer to that is negative but will endeavor to verify.
After an IRA owner dies, no-one can add to it or convert it, except the spouse, if they first re-title the account as their own.


Why don't you look for grandfather's birthdate? If he was born before 1910, the chances he started an IRA at 65 is almost null.

https://www.familysearch.org/en/
(You need to register to do searches, but it's free.)
Looking for his death certificate is a good place to start. Calling MIL is another idea. Or look for him in the 1940 census which will give his age. Your MIL should be listed with him as she was about 4 at the time.
celia:

Thank you for this recommendation, which I have followed up on.

DW's grandfather (the creator of the trust) was born in 1908 and passed in 1987 at age 79. That also means the TIUA date (1980) is the date the trust must have been created -- and was created when he was about 72 years old. IRAs were first authorized in 1975 if I understand it correctly, which means he was 67 at that time.

So without even digging around at the trustee bank (and DW likely won't do that for family and other reasons) it seems almost a certainty that no IRA was placed in the trust prior to and/or at his death.

Again, thank you so very much. I'm indebted to you.
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Zeno
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Re: RMD Question Regarding Trusts

Post by Zeno »

Alan S. wrote: Tue Jan 25, 2022 10:07 am We are not concerned with excess contributions here, rather RMDs that were not distributed from the IRA to the trust, presuming that there is actually an IRA held by the trust. Form 5498 will show the year end balance each year and provide a general idea how large the RMDs would be based on the age of the oldest trust beneficiary, your MIL.

1980 could either be the year the trust was drafted or the year it became irrevocable due to the death of the trustor. MIL would ordinarily be able to recall the year of death. In this particular case, it sounds like the bank is not only the trustee of the trust, but also the IRA custodian. In other words, they would be issuing a 5498 to the IRS and themselves as trustee of the trust. As the IRA custodian, their requirements are limited, but as the trustee of the trust they are negligent for ignoring the RMD requirements that apply to the trust.

The IRS has never required beneficiary RMDs to be reported to beneficiaries as they are for IRA owners. In other words, Box 11 and 12 is not normally completed after the owner passes. Therefore, without custodian assistance in determining beneficiary RMDs, the IRS has defaulted to non enforcement of beneficiary RMDs. Perhaps that is why Celia indicated that the RMD issue can be ignored if the trust is the beneficiary of an IRA, however the proper RMD is technically still required. Further, the IRS does not pursue decedents for missed RMDs, nor beneficiaries of those decedents unless perhaps the IRA was large enough and an audit disclosed other major tax issues.

It will probably be difficult to get any info from the bank without at least having a POA from MIL.
Alan:

This is exceedingly helpful information. I cannot thank you enough. It, along with other information, confirm that my original concerns were certainly misplaced. This all very reassuring.
Last edited by Zeno on Wed Jan 26, 2022 7:00 am, edited 1 time in total.
Topic Author
Zeno
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Re: RMD Question Regarding Trusts

Post by Zeno »

Lee_WSP wrote: Tue Jan 25, 2022 11:07 am Your wife is a successor beneficiary. She is receiving these reports because as a person with an interest with the trust, the trustee is sending you the information.

The trustee is responsible for rmds, taxes, etc.

If your wife ever becomes trustee or primary income beneficiary, then you need to worry about this. Until then, it's not your problem yet and you have no power to do anything about it anyway.
Lee:

Thank you! That all makes sense. I will stop fretting about all of this. Thank you for weighing in with these insights.
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