IRA via estate
I am the personal representative and sole beneficiary of a deceased. She was 78. She had an IRA worth $65,000. I am not related to her. I have liquidated the IRA and had a check payable to the estate issued by the custodian and then deposited that into an estate account at a bank. She died in late 2011, but the liquidation of the IRA was done in 2012. I would like to minimize the taxes due. Any help? Is there a way to spread the distributions to me over 2 or more years? Should I make charitable contributions from the estate rather than from me? Any “outside the box” thinking may be helpful. The only other assets were some money in the bank, and 2 houses and personal property.
Permalink Submitted by Alan Spross on Wed, 2012-05-02 23:32
You should not have distributed the IRA to the estate. Since the IRA owner passed after her required beginning date, you could have had the inherited IRA assigned to you as beneficiary of the estate and taken RMDs over the remaining life expectancy of the deceased owner. Passing at 78, that would have provided you with her remaining life expectancy annual RMDs that would stretch the IRA over 10.4 years starting with 2012 instead of 65,000 ordinary income in 2012.
At this point, the IRA is fully taxable in 2012, although you should check to see if she had any basis in the IRA from having made non deductible contributions. Look for Form 8606 on her most recent tax returns. If she had basis, you inherit the remaining basis and it will reduce the 65,000 taxable income by the amount of basis remaining on line 14 of the last 8606.
If you make charitable contributions from the estate in 2012, those could be passed through to you to offset the IRA income. I don’t know if you are better off to have the estate make the contribution or for you to take ownership and make your own donations. You would only benefit if you can already itemize deductions. The other assets receive a basis adjustment to the date of death value, so selling the real estate this year could produce a capital loss about equal to the costs of sale (commissions, closing costs etc). Do not move into a house or you will have effectively converted it to personal property and you will not be able to use the capital loss. Any cap loss could would first offset your other gains, but is limited to 3,000 per year beyond that with the excess cap losses carried forward.
That IRA estate income will certainly make it necessary to file a 1041 for the estate, although you would have to anyway if the houses are rented.
Permalink Submitted by Bruce Steiner on Thu, 2012-05-03 03:14
If the estate is too small to pay Federal estate tax (which is more often the case with a $5 million exempt amount), you can take the administration expenses as income tax deductions, which will offset some or all of the income from the IRA.
If the beneficiaries are in lower tax brackets, you could make distributions, which would carry out income.
See Section 642(c) for the requirements for a charitable deduction for an estate.
The lawyer handling the estate should be able to give you more specific advice. However, where has he/she been thus far? He/she might have advised you as to your choices regarding the IRA.