IRA payable to “THE ESTATE”
If the IRA is payable @ death to the Estate, who is responsible to pay the income tax, the Estate or the Estate beneficiaries???
If the IRA is payable @ death to the Estate, who is responsible to pay the income tax, the Estate or the Estate beneficiaries???
Permalink Submitted by mk foss on Thu, 2009-12-10 18:56
An IRA payable to the estate is a very bad situation. That’s because the IRA will need to go through a probate procedure, unlike IRAs with individuals or trusts as beneficiaries.
If the estate cashes out the IRA in the year before it makes distributions to beneficiaries, the estate pays the tax. If the estate makes distributions to the beneficiaries in the year it cashes out the IRA, the liability for the income tax will pass out to the beneficiaries.
The estate could also transfer the interests in the IRA to the beneficiaries, then they would control the distributions and pay tax on them. You don’t get a “stretch-out” when the estate is the beneficiary of the IRA, each estate beneficiary takes RMDs based on the same schedule as the estate would.
Permalink Submitted by Bruce Steiner on Sun, 2009-12-13 00:14
You probate the Will, not the IRA. Probating a Will is generally routine. But leaving an IRA to one’s estate destroys the stretchout, and exposes the IRA to the IRA owner’s creditors. It’s rarely if ever a good idea to leave an IRA to one’s estate.
Permalink Submitted by mk foss on Mon, 2009-12-14 00:05
When the IRA has no beneficiary or the estate is the beneficiary it becomes one of the assets that are part of the probate process. A probate takes time and fees are based on the size of the estate – so in addition to losing a stretchout you lose time and money.