Inherited IRA
A client just brought in information on an inherited IRA. Three sisters inherited Dad’s IRA account in a round about way. Whoever advised them, had Dad’s IRA go to Dad’s trust (the trust was set up as the beneficiary and the sisters beneficiary of the trust). Am I wrong in assuming that the entire balance of the IRA account is taxable, whether or not the sisters took any of the money?
Permalink Submitted by Bruce Steiner on Mon, 2009-02-23 03:52
The IRA will be included in Dad’s estate for estate tax purposes.
Ignoring any basis, the 3 sisters will pay income tax when they receive distributions, and will be entitled to an income tax deduction for the estate tax under Section 691(c). Depending on the terms of the trust, they may be able to stretch the distributions out over the oldest sister’s life expectancy.
Why would anyone bother to create a trust that ends upon the grantor’s death and leave the IRA to it, when he could have simply left the IRA to the 3 sisters? (Or if he wanted to provide for them in trust rather than outright, he could have left the IRA to separate trusts for their benefit.)