IRA Rollover and Estate Planning: Why you might not qualify?

Starting January 1, 2008 every non-spouse designated beneficiary will have the option to rollover an inherited IRA and stretch distributions. To take advantage of this opportunity your Florida estate plan must be setup correctly to qualify for this rollover opportunity. You are not entitled to a rollover, you must prove you meet the technical legal requirements. Let’s take a look at why your family would not qualify for the new IRA rollover opportunity.

The IRS has very specific rules for how a trust can qualify as a see through trust and treated as a designated beneficiary. The top level bullet point requirements are:

The trust must be valid under state law;
The trust must be irrevocable or become irrevocable when the IRA owner dies;
The trust beneficiaries must be identifiable from the trust instrument;
Proper documentation must be provided to the IRA custodian.

Seems simple enough right? Remember, this is the IRS we are dealing with and they take income tax deferral very seriously because they think they are losing money. They have regulations on top of regulations on top of Private Letter Rulings and court decisions defining each one of those bullets in extensive detail. There is enough material to write a book on those four issues, and people have. I can’t get into detail on all of them here because it would take forever.

The most common issue is the requirement that beneficiaries be identifiable from the trust document. Often trust documents do not contain adequate language to comply with the IRS rule. Make sure you have the proper language to qualify for rollover treatment.

Rollover treatment is a privilege, not a right. Your family will not qualify for rollover treatment if you do not follow the rules in your estate plan. Make sure you and your Florida Estate Planning lawyer or attorney understands the requirements and that your estate plan doesn’t fall apart on this critical issue.

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