BENEFICIARY GUIDE

Private Lending

The Process

Step 1: Open an IRA with New Direction Trust Company

This allows us to communicate with you and share documents back and forth in a secure manner when logged into our client Portal.
Complete the Inherited IRA Election Form (IEF), which provides us with your beneficiary type, (designated or eligible designated) and authorizes the internal transfer of assets to your IRA account.
Provide a copy of the Death Certificate. This can be done securely through the messaging center in the client portal if not provided previously.

Step 2: Review the assets you have inherited from the decedent.

NDTCO will provide you with a copy of a statement from the decedent’s account.
NDTCO will provide you with a copy of any paperwork we received when the note was funded.
If there is more than one beneficiary, the account will need to be divided according to the beneficiary designation.
Review this article Private Lending with your IRA – New Direction Trust Company (ndtco.com)

Step 3: Determine how to divide the asset if there is more than one beneficiary.

In some cases, the asset held in the account does not divide evenly according to the beneficiary designation. In these cases, the beneficiaries must come to an agreement on how they will divide the assets to meet the designation.
The beneficiaries will draw up a document outlining this division. Guidance will be provided for this document at the appropriate time. Each beneficiary will sign this document in front of a notary public.

Step 4: Determine which option you want to complete for your inherited Private Equity.

Move the Note to your new IRA account. You will need to provide us with an amended note to complete this. There is more information on this below.
Distribute the Note to yourself personally – this will be reported to the IRS as income. You will need to provide us with an amended note.
Have the borrower payoff the Note, if possible.
- Funds will be deposited in the decedent account.
- Move the funds to your IRA. Once the funds are in your account, you can re-invest or transfer to a new custodian.
- Distribute the sale proceeds to yourself – this will be reported to the IRS as income.

BENEFICIARY GUIDE

Additional Important Information

Information about Private Lending in an IRA

The decedent made the decision to lend their IRA funds to this borrower. In addition, they determined the details of the note, such as if it is secured or unsecured, repayment terms, as well as any other pertinent details. NDTCO does not recommend, endorse, or provide investments for our clients.
When you inherit a note, you will have the option to keep or modify the terms of the note. In some cases, the borrower may be able to repay the note in full. You will need to work with the borrower to determine what will work for all parties involved.
For more details on these and other important topics, review the IRS Rules and Regulations, Private Lending with your IRA – New Direction Trust Company (ndtco.com) and Secured and Unsecured Promissory Notes – Putting Your IRA to Work (ndtco.com)

Principal or interest payments must be made to the IRA while the decedent’s IRA still holds the note

All principal or interest payments must be made to the decedent’s IRA if the asset is still held by the decedent’s IRA.
It could be considered a prohibited transaction to have principal or interest paid directly to the beneficiary prior to the distribution of the asset to the beneficiary. Prohibited Transactions and Self-Directed Investing (ndtco.com),

Note that hasn’t received payments recently

NDTCO is not a note servicer, and it is not our responsibility to make sure note payments are made according to schedule. The IRA is the lender. It is the account holder’s responsibility to make sure the borrower is following the terms of the note.
In some cases, a note may be past maturity, or the borrower may not have made payments for an extended period. It will be the responsibility of the beneficiary to locate the borrower.
It may be necessary for the beneficiary to get the advice of an attorney to assist with recovering past due funds or other resolutions to the note.
On occasion, a borrower is not able to be located or refuses to make payments on the note. In this case, the beneficiary will need to work with NDTCO to zero-value the note. You will need to provide NDTCO with documentation to show the note should be zero-valued. If this situation applies to you, you can find more information on the process and documentation here Zero-Value Assets and Distributions – New Direction Trust Company (ndtco.com). The beneficiary may choose to work with a CPA to report the unpaid note to the IRS as income for the borrower. NDTCO does not provide this service.

Re-Titling documents

It will be the responsibility of the beneficiary to work with the note holder to prepare an amended note. You can write a new note or just make an amendment to show any possible changes in terms, list the new note holder and where to make payments. You may need to work with a financial specialist or attorney to assist you in completing this.
- If you are a spousal beneficiary and took the account as your own, the preferred title of your IRA is NDTCO as Custodian FBO (Your Name) (Trad or Roth) IRA
- If you have an Inherited IRA, the title of your IRA is NDTCO as Custodian FBO (Your Name), Bene – (Decedent Name) dcdt (Roth – when applicable) IRA
- If you are distributing the asset, it must be re-titled to your name.
You will need to provide approval of the documents. NDTCO will provide you with instructions.
We will need the signature of all borrowers on the amended note.
NDTCO will sign all documents. The beneficiary should not sign the note.

Distributing the Note to yourself

It will be the responsibility of the beneficiary to prepare a new or amended note and to work with the borrower regarding any possible change in terms.
The amended note will need to show you are the note holder.
We will need the signature of all borrowers on the amended note. Please provide NDTCO with a copy of the signed note.
You complete the Distribution and Notice of Withholding Form, found in the client portal.
If it is a secured-note you will be responsible for preparing and recording any necessary documents. NDTCO may need to sign any release of lien. Please let the Life Events Specialist know and they will provide you with assistance.
We will complete an Assignment form, that clarifies the ownership change from the IRA to the beneficiary. This will be sent to you with any original documents we may have.
Once we have a copy of the signed note, any cash that may be in the account will be distributed. NDTCO will not process a cash distribution from a decedent account when there are assets still in the account.
The value of the note plus any possible cash will be reported to the IRS.
See the NDTCO Fee Schedule for any associated fees for a distribution. Any fees due on the decedent’s account are the responsibility of the beneficiary.

Paying off the Note

You will need to work with the borrower to determine if they are able to pay off the balance of the note. This may not be possible and is beyond the control of NDTCO.
If they are willing to pay off the note, you will need to complete our Payoff Letter, which will be provided to you at the appropriate time.
See the NDTCO Fee Schedule for any associated fees for the payoff.
The funds from the payoff must be deposited in the decedent’s IRA account.
The cash will be moved to your own IRA account within one week from when the cash is available in the decedent account and fees have been paid.
You can choose to re-invest the cash in your new IRA, transfer to a new custodian, or take a distribution. All distributions will be reported to the IRS.

Internal Movement of Assets to your IRA

To transfer ownership of the note from the decedent’s IRA to your IRA, you will need to work out the details with the borrower and provide NDTCO with a new or amended note.
You will need to complete the Note Amendment Form, which will be provided to you at the appropriate time. You will need information from the original note and the new note or note amendment to complete this form.
You will need to provide approval of the documents. NDTCO will provide you with instructions.
We will need the signature of all borrowers on the new or amended note.
NDTCO will sign all documents. The beneficiary should not sign the note.
If it is a secured-note you will be responsible for preparing and recording any necessary documents. Remember to use the title of your IRA, which can be found above. NDTCO will need to sign these documents, not the beneficiary.
We complete internal transfers for all beneficiaries of the same decedent account on the same day. We work on internal transfers once a week. This means that all beneficiaries need to have their paperwork completed before transfer of the assets into the beneficiary’s accounts.
Assets will be moved to the beneficiary’s accounts once all these steps have been completed.
The note and cash will be moved internally from the decedent’s IRA to your IRA at the same time. NDTCO is not able to complete an internal transfer or distribution of the cash prior to the note being paid off or transferred to your IRA. NDTCO will not process a cash distribution from a decedent account when there are assets still in the account.
You can choose to leave the assets with NDTCO in your new account or to transfer the assets to a new custodian.

NOTE: NDTCO understands there is a lot to consider when inheriting a note in an IRA. We would like you to provide us with a decision as to what you plan to do with the note within 60 days from when you complete the Inherited IRA Election Form. An NDTCO Life Events Specialist will work with you during this process, but it is going to take time and attention on your part. We ask that you communicate with us regularly on the steps you have taken. Any inaction or non-communication for 6 months may result in the decedent account being found not in Good Standing and may be distributed to the beneficiary at the last reported value. The beneficiary would be responsible for any taxes as a result.

FAQ

How long does the process take?

This will be in part dependent on how quickly the beneficiary acts and completes the steps that they are required to complete. In addition, it will depend on what the beneficiary is planning to do.

Why does NDTCO have to sign the documents for the internal transfer?

Both your IRA and the decedent’s IRA is the note holder, so an authorized signer for NDTCO must sign on behalf of the IRA.

Can NDTCO advise me on what to do with the assets I have inherited?

No, NDTCO is a non-fiduciary custodian and cannot provide tax, legal or financial advice. You will want to talk with a trusted CPA or tax attorney if you need advice.

Will I have to pay taxes on the note since I inherited it?

Moving your note to your IRA is not a taxable event. At some time, you may choose to distribute your assets. If the decedent had a pre-tax account, such as a Traditional or SEP IRA, the distribution is typically taxable. If they had a Roth IRA, then the distribution may not be taxable. You will want to check with your trusted CPA or tax attorney to understand what tax rules apply to the account you have inherited.

Will NDTCO notify me when I need to take a distribution and how much I need to take?

Generally, a designated beneficiary must distribute the entire account within 10 years after the date of death. There are multiple options for an Eligible Designated Beneficiary. You should consult your trusted CPA or a tax attorney to make sure you understand your options, whether RMDs are necessary, and the consequences for each. It is the responsibility of the account holder to understand when and how much needs to be distributed from an IRA they have inherited.

Why do I have to wait for the other beneficiaries to complete their paperwork before I can have my assets?

We need to make sure we are following the decedent’s beneficiary designation. It also helps to ensure that no errors are made.

Are there any fees associated with this process?

We do not charge our application fee to beneficiaries of NDTCO clients. There will be fees for the internal transfer, a payoff, or distribution. Any past due fees or upcoming fees on the decedent’s account are the responsibility of the beneficiaries. The fees will be split according to the percentages listed in the beneficiary designation. Our fee schedule outlines all NDTCO fees associated with your account. It can be reviewed here Fees – New Direction Trust Company (ndtco.com)

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