Help!!!- IRA in estate account
My father-in-law died 5 years ago. He had an IRA at a bank, which had no named beneficiary. (When the account was opened, the bank said his wife would be the beneficiary by default, but apparently the law changed in the interim, and when he died, they would not let her roll it over to her own IRA because she was not explicitly named in his IRA as the beneficiary.
Instead, the bank said the only way to keep it in an IRA was to open an estate account IRA. This was the only asset in the estate account, as all other assets were jointly owned.
My mother in law was the sole executor and beneficiary for this account. She took the required annual distributions, filed 1041 returns each year, and included the distribution on her own 1040 via the K-1.
In early March of 2008, she closed this estate account IRA which had a balance of $17k, but now realizes that this sum will increase her 2008 income too much to qualify for property tax relief she gets from the state.
Question: Can mother in law open an IRA in her name with the proceeds from the estate IRA (still less than 60 days elapsed). The bank refuses to do it, but we would go to another bank to open it if OK. If it is Ok, would it
be considered a rollover IRA or a re investment IRA? How will the IRS match up the statements from the closing of the estate IRA and the statement from the new bank showing the deposit of funds to her own IRA?
Thanks for your help.
Permalink Submitted by Alan Spross on Tue, 2008-04-22 21:46
Since she is the sole IRA beneficiary and executor of the estate, there have been numerous IRA letter rulings back in the 90s allowing her to rollover the distributions to her own IRA. Therefore, she should open an IRA in her own name and rollover the funds she has distributed within the last 60 days. Be sure the new custodian classifies the contributions as rollover contributions (from husband’s IRA) and not new regular contributions. She should report this on her 1040 as a rollover of the k1 proceeds, and the IRS should be able to track this OK. However, an explanatory statement with her tax return explaining all this is recommended.
What is interesting here is that this all may have been unnecessary. There was no change in the law with respect to default IRA beneficiaries and plenty of agreements still have the surviving spouse as the default beneficiary. If the bank changed their agreement from a default in favor of the surviving spouse to the estate, that’s one thing but there was nothing that would have forced them to do that. A default class of beneficiary such as a surviving spouse is deemed a designated beneficiary, and she could have taken RMDs or rolled over the account from day one without opening an estate. I do not know if you checked the agreement to see what it actually said, but at least the balance should be eligible for rollover now to her owned IRA account.
Permalink Submitted by Bruce Steiner on Tue, 2008-04-22 21:55
See my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf
Permalink Submitted by annie stone on Tue, 2008-04-22 23:21
OK. Thanks. We’ll try another bank. Won’t they want to see the statement from the first bank showing where the distribution came from (estate IRA in the name of “estate of deceased husband”)? Am concerned they will turn us away too. Do you know what a bank setting up an IRA requests besides a check to fund it and an application? Thanks for your help.