When is this IRA subject to Income Tax?
Joe was 84 when he died. His wife was named sole beneficiary on Joe’s IRA. Wife died, but Joe did not change beneficiary designation. Joe’s IRA is, of course, included in his state estate tax. Joe had a revocable trust that left his property to one individual and four charities. What can be done with Joe’s IRA to minimize the income tax consequences of dying without a named beneficiary?
Permalink Submitted by Alan Spross on Thu, 2010-06-10 19:18
The first thing to do is review the beneficiary clause in the IRA agreement to determine if there is a default beneficiary other than his estate or of course his spouse that pre deceased. While unlikely, this should be verified.
If his estate is indeed the default beneficiary under the agreement, then the will determines where the IRA funds go. If no will, then the state intestate provisions will determine the beneficiary of his estate. But since Joe passed well after his RBD, the estate can take RMDs over Joe’s remaining life expectancy of 8.1 years. The estate can be closed at the proper time and the IRA assigned to estate beneficiaries. If the RMDs are passed through the estate on a K1, the marginal rate of each beneficiary will apply, otherwise the compressed estate income tax rates will apply.