Spouses die in short succession
Husband and wife each have an IRA. Both are over 70 1/2 and have been properly receiving RMDs. The SOLE designated beneficiary of each of their IRAs is each other.
Husband dies in January.
Before wife can do anything, wife dies in February. The sole designated beneficiary of her IRA is her now deceased husband.
Each of them have identical wills that provide all to spouse, remainder to their children.
IRA administrator says, “we will be paying both his and her entire IRA balance in one lump sump to her estate. Oh, and enjoy the tax hit.”
Wouldn’t at least the 5 year rule apply? And under the 5 year rule, are the payments made to the estate over 5 years, or do we provide the names of the beneficiary to the custodian?
Permalink Submitted by Denise Appleby on Thu, 2007-10-25 01:54
David,
The five year applies only if the IRA owner died before the [url=http://www.retirementdictionary.com/Required-beginning-date.htm%5DRBD%5B/url%5D.
When he died, she became the owner of his IRA. Since she did not designate a beneficiary for the IRA, the beneficiary is determined by the default provision of the IRA agreement.
Has it been determined the default beneficiary provision of the IRA agreement ? Many provide that if the IRA owner is not survived by a spouse, the beneficiary is then the children of the decedent.
Permalink Submitted by David Shulman on Thu, 2007-10-25 13:50
The Default beneficiary is the estate.
Now what? I’m trying to avoid a big one time tax hit.
Permalink Submitted by Al Fry on Thu, 2007-10-25 15:37
Have you checked the simultaneous (common accident) laws for their State of residence? Some have adopted a 5-day delay provision. Bruce is the expert on this subject.
Permalink Submitted by David Shulman on Thu, 2007-10-25 19:35
They didn’t die that close together.
I think the answer is to do a Trustee to Trustee transfer to 3 new IRAs titled “Wife IRA for the benefit of Child1” etc.[
Permalink Submitted by [email protected] on Fri, 2007-10-26 18:48
Since the estate is the beneficiary of the wife, and she’s past the RBD, the estate could take RMDs over her remaining life expectancy. Granted, the estate is unlikely to remain open that long, but the same RMD schedule could be used by the ultimate beneficiaries (the three kids) when they set up inherited IRAs.