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See-Through Trust Deadline Right Around The Corner

October 17th is not the only important date this month for retirement account owners. This past Monday was a date circled on the calendar of many of you. For most of you, that was the final deadline to complete a timely Roth recharacterization of a 2010 Roth IRA conversion (the deadline is now October 31st for certain individuals affected by Hurricanes Irene and Lee, or the wildfires in Texas).

October 31st is also a key deadline to be aware of. Besides being Halloween, it’s also the date by which a copy of a trust that inherited an IRA in 2010 must be delivered to the account’s custodian in order to qualify as a see-through trust. To put that into English for you, if someone died last year (2010) and left their IRA to a trust, a copy of that trust must be delivered to the account’s custodian (typically a bank or brokerage firm) by October 31, 2011 in order for the trust to be considered a see-through trust.

There are also several other requirements for a trust to be considered a see-through trust, but none of them relate to the upcoming deadline, so we’re not going to get into them here (Editor's Note: We promise we will at a more pertinent time).

Suppose this deadline is missed, then what? Well, that would mean the trust fails to qualify as a see-through trust and that could have some pretty serious tax consequences. Normally, only a living, breathing person can “stretch” distributions from an inherited IRA, but a see-through trust allows the trust to stretch RMDs (Required Minimum Distributions) out over the oldest trust beneficiary’s life expectancy. If however, the trust fails to qualify as a see-through trust (which would happen if a copy of the trust were not timely delivered) then it has no life expectancy by itself. In many cases, this could mean the entire IRA must be distributed to the trust within five years.

So just who exactly is responsible for delivering this copy of the trust to the custodian? Is it your CPA? The estate planning attorney handling the estate tax return and/or probate? Your financial advisor? Nope. Although any (or all) of those individuals should be aware of the situation and double check to make sure the trust has been delivered, the ultimate responsibility lies with the trustee. That could be you! And if not you, there’s a good chance it’s some other member of your family, like a brother or sister, who also would typically not know about this deadline.

So make sure to spread the word and get those trusts in by October 31st! This is an easy requirement of see-through trusts, but too often it’s the one that is missed because the responsible party - the trustee - has no clue it even exists. Thankfully though, now that you’ve read this article, that will never happen to you and Halloween will be a little less scary.

-By Jeffrey Levine and Jared Trexler


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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

Can I transfer money from my IRA to my husband's Roth IRA? I am 35, and he is 36.

Thank you!

Gail Clements

No. The only way your IRA funds can be transferred to your husband’s IRA is in a divorce or after your death. Even then, it would have to be transferred to a similar IRA, for example an IRA to IRA or a Roth IRA to another Roth IRA. In this case, you cannot transfer your IRA into your husband’s Roth IRA.