Inherited IRA Estate Tax question
I have inherited an IRA. I am only the benificiary of the IRA, others are beneficiaries and will receive the risidual balance of the estate. I have been asked to then pay the equivalent % of estate tax into the estate cooresponding to the % of the estate that the IRA emcompasses. For example if the IRA was 10% of the estate, I would be responsible for paying in 10% of the estate tax. Does this seem right? Is this common practice for one only inheriting an IRA (which will be gross proceeds and not be net of estate tax)?
Permalink Submitted by Bruce Steiner on Fri, 2007-11-09 20:44
It depends what the Will says, or what state law says if the Will is silent. In many states, if the Will is silent, the recipients of nonprobate assets such as IRAs have to contribute their shares of the estate tax. But often the Will exonerates the recipients of the IRAs from having to contribute to the estate tax.
In any event, you’ll get an income tax deduction under Section 691(c) for the Federal estate tax attributable to the IRA. The attorney handling the estate should be able to tell you how much the deduction is, and whoever prepares your income tax returns should know how to claim this deduction.
Permalink Submitted by cameron laufer on Fri, 2007-11-09 23:45
Thanks for your help. A quick question. Is the amount given by the attorney and paid by me as the IRA portion of the estate tax equal to the total deduction I can then take on my individual return? Also can I spread that amount out over time as I continue to take RMD’s on the benificiary IRA?
Permalink Submitted by Bruce Steiner on Sun, 2007-11-11 00:33
The deduction is for the difference between the total Federal estate tax and what the Federal estate tax would have been absent any items of income in respect of a decedent (net of any deductions in respect of a decedent). The recipients of the IRD items get the deduction. See Section 691 of the Internal Revenue Code. As previously noted, the attorney should be able to tell you how much you can deduct. The deduction is spread out over the IRD you receive, up to the amount of IRD included in the estate. The person preparing your income tax returns should be able to take it from there.