An inherited IRA can involve several layers of administration when the account is held through a trust. The trustee may have responsibilities under the trust documents, while the IRA custodian, financial advisor, attorney, and tax professional may each have separate roles.
For families considering a trustee for inherited IRAs, understanding those roles before an appointment can be useful.
Does the Trust Actually Need a Trustee?
The first question is how the inherited IRA is structured. An IRA may have an individual beneficiary, a trust as beneficiary, or another arrangement. The applicable distribution rules can differ depending on the circumstances.
When a trust is involved, the trust document should be reviewed to determine the trustee's authority and responsibilities. Retirement account rules should also be evaluated based on the specific account and beneficiary circumstances.
Because inherited IRA rules can be technical and may change, tax questions should be reviewed with a qualified tax professional.
What Should Families Ask a Prospective Trustee?
Before selecting a trustee for inherited IRAs, families may want to ask:
What fiduciary responsibilities will the trustee assume?
How will the trustee administer the trust?
How will IRA distributions be handled?
Who communicates with beneficiaries?
What records and reports will be maintained?
How will the trustee coordinate with the IRA custodian?
How will the trustee communicate with the family's financial advisor?
What fees and administrative costs apply?
The answers should be considered alongside the trust documents and applicable agreements.
How Do IRA Rules Affect Administration?
Inherited IRA distribution requirements depend on factors such as the identity of the beneficiary, the date of the account owner's death, and whether the beneficiary qualifies for particular treatment under applicable retirement rules.
For some beneficiaries, a 10-year distribution period may apply. Other circumstances can involve different distribution requirements. A trust beneficiary can also involve additional considerations.
These rules should not be treated as one-size-fits-all. The trustee may administer the trust, but tax professionals and the IRA custodian may have important roles in determining applicable requirements.
How Does the Trustee Work With an Advisor?
A financial advisor may continue providing investment advice or financial planning services within the scope of the advisory relationship. The trustee handles the fiduciary responsibilities assigned under the trust documents.
Coordination may involve investment information, distribution requests, beneficiary communications, and reporting.
For example, Members Trust Company provides trust and estate services and works with financial professionals in connection with trust administration.
The specific division of responsibilities should be documented and communicated to the family.
What Should Advisors Review?
An advisor discussing a trustee for inherited IRAs with a client may want to review:
The trust's governing provisions
The trustee's authority
Beneficiary circumstances
IRA custodian requirements
Distribution administration
Communication procedures
Reporting and recordkeeping
Coordination with legal and tax professionals
The advisor should avoid making tax or legal determinations that fall outside the firm's role.
Conclusion
Choosing a trustee for inherited IRAs requires attention to the trust documents, beneficiary circumstances, IRA requirements, fiduciary responsibilities, and roles of the professionals involved. A proposed trustee arrangement should be reviewed with appropriate legal, tax, and financial professionals.
Many firms including Members Trust Company provide trust and estate services that may include trustee services for applicable arrangements. The appropriate structure depends on the specific trust, account, beneficiary, and applicable requirements.
FAQ
Does every inherited IRA need a trustee?
No. Whether a trustee is involved depends on how the IRA is structured and whether a trust is serving as beneficiary or otherwise holds an interest in the account.
What does a trustee do with an inherited IRA?
Responsibilities depend on the trust documents and applicable requirements and may include trust administration, distributions, recordkeeping, and beneficiary communications.
Who determines the tax treatment of an inherited IRA?
A qualified tax professional can evaluate the applicable tax rules based on the account, beneficiary, trust structure, and individual circumstances.
Can an advisor work with the trustee?
Depending on the arrangement, an advisor may continue providing investment or financial planning services while the trustee performs its assigned fiduciary responsibilities.
This article is provided for educational purposes only and does not constitute legal, tax, accounting, or investment advice. Trust, estate, retirement, and tax considerations vary based on individual circumstances and applicable law. Trust and fiduciary services are subject to review, acceptance, applicable law, governing documents, and Members Trust Company's policies and procedures. Investment products and services are not deposits or obligations of, and are not guaranteed by Members Trust Company, any credit union or government agency. They are not federally insured and are subject to investment risk, including possible loss of principal. Readers should consult qualified professionals regarding their specific circumstances.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
