New DOL rules increase scrutiny of IRA trustee fees: CPAs should be careful before agreeing to be trustees of IRA trusts and should consider especially whether any fees charged might be excessive.
Author | Goldberg, Seymour |
Position | Dept. of Labor, individual retirement accounts, certified public accountants |
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The potential that practitioners will be faced with prohibited transaction excise taxes has recently increased for CPAs who act as trustees of IRA trusts. CPAs who act in this capacity can be subject to excise tax liabilities if the IRA trustee causes the IRA trust to directly or indirectly incur fees that are not reasonable in the aggregate.
Because the Department of Labor (DOL) focuses on the amount of fees incurred in rendering IRA advisory services to IRA account holders, the IRA trustee now faces increased scrutiny. The DOL released the final fiduciary rule regarding IRA advisory services on April 6,2016, effective April 10, 2017. The DOL fiduciary rule focuses primarily on the IRA adviser, whereas this column addresses the issues facing the IRA trustee.
DOL's Point of View
Although there has been a great deal of discussion involving the IRS's treatment of IRA trusts, very little has been written about the DOL's point of view when an IRA trust is the beneficiary of an IRA. Since Dec. 31, 1978, the DOL has been delegated the authority to issue interpretations regarding prohibited transactions under Sec. 4975 if IRAs are involved. Sec. 4975 covers the rules for prohibited transactions.
A detailed discussion of Sec. 4975 as it relates to an IRA trust was issued by the DOL in 2009 (see DOL Advisory Opinion 2009-02A, available at tinyurl.com/z4kwc7m). Practitioners need to be aware of Advisory Opinion 2009-02A so they do not fall into a trap that can trigger tax problems when IRA transactions are at issue.
In the facts discussed in the advisory opinion, the IRA owner established a revocable trust as the beneficiary of his IRA account. The trust terms provide that it will become irrevocable upon the IRA owner's death. (That provision is required based on Regs. Sec. 1.401(a) (9)-4, Q&A-5, when a trust is the beneficiary of an inherited IRA.) Seymour was the IRA owner and initial trustee, Jason was the successor trustee, and Cole was the trust beneficiary. Jason, as successor trustee, was granted the power to "invest and reinvest the assets in the IRA in any securities, stocks, bonds or other property, real or personal, which may be deemed advisable ..."
Jason, the successor trustee after the IRA owner's death, is required under the terms of the trust to determine the required minimum distributions (RMDs) that must be received by the trust for each calendar year based upon the distribution calendar year, the account balance as of the appropriate valuation date, and the appropriate life-expectancy factor. The successor trustee then has to pay the RMDs each year to Cole, the trust beneficiary, or the custodian under the Uniform Transfers to Minors Act if he is under the age of 21.
The Seymour Goldberg Revocable Trust for the Benefit of Cole Goldberg was a trust created under the laws of the state of New York. Under New York law, trustee commissions for individual trustees are based on statutory rates...
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