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New DOL Rule May Affect IRA Trustees and Custodians

Posted on: June 6th, 2016
fiduciary ruleThe Department of Labor (DOL) released a new final rule earlier this spring that addresses a few important terms related to Individual Retirement Accounts (IRAs). The rule clarifies the definition of a fiduciary in both employee benefit plans and in IRAs. It also sets forth a ‘fiduciary’ standard for advisers and consultants to observe when working with investors to help minimize conflicts of interest.

The National Law Review shed light on another result of the final rule: IRA trustees and custodians might become fiduciaries under the new rule. Trust agreements between the IRA trustee or custodian and the IRA owner must comply with federal tax code requirements. Many existing agreements contain language stating that the trustee is not a fiduciary and is not accountable for investment decisions, though this language is not required by federal law. With the forthcoming changes, a trustee’s role might become a fiduciary under the new rule, thereby making such language in trust agreements inaccurate.  IRA trustees or custodians should review, and may need to amend, their trust agreements accordingly.

While some IRA custodians or trustees use IRS model agreements, others utilize prototype agreements that have been submitted for approval to the IRS. According to the National Law Review, the Internal Revenue Service (IRS) may take three-to-four months to respond to proposed amendments to ‘prototype agreement’ amendments. The process could take longer if a high volume of new requests are submitted simultaneously. Factor in the IRS review time, plus additional time for notifying account owners.

Individuals with IRA trusts and multiple retirement accounts have more paperwork to address, so the process will likely take longer for them. Advisers should reach out to clients and alert them of the pending changes and importance of reviewing IRA documentation. IRA owners should schedule a review of accounts, forms, and other regulation changes with an asset protection attorney or adviser. 

To stay updated on important regulations affecting trust administration, follow our asset protection attorneys on Facebook and Twitter @estateplansnc.
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