what happens to IRA on death of owner?
IRA owner died. IRA has two children of owner named as beneficiaries.
Is it the executor’s duty to notify the beneficiaries that they have the right to establish inherited IRA accounts to receive their respective shares of the decedent’s IRA?
Or does the executor have discretion to liquidate the IRA (it’s a relatively small amount) and send each beneficiary 1/2 the cash?
Permalink Submitted by Jose Morales on Mon, 2012-11-26 17:16
If there are named beneficiaries, they would be the only ones that we would accept any instruction from in the even an IRA owner passes away. The executor of the deceased’s estate, unless named as a beneficiary as well, would have no ability to direct what happens with the IRA or make decisions on behalf of the beneficiaries. If the children are minors, we would only take instruction from their legal guardian on their behalf.
Depending on the level of IRA knowledge at the institution holding the IRA, there could be great variation regarding what is or isn’t allowed upon the death of an IRA owner.
Permalink Submitted by Alan Spross on Mon, 2012-11-26 17:44
You asked about the executor’s duty. As urusei2 pointed out, the executor has no authority over the IRA since the IRA is not a probate asset when there are designated beneficiaries.
However, the executor does have the duty to recognize the DOD IRA balances because they are included in the gross estate and have a potential effect on estate or inheritance tax issues. The executor would also typically provide the IRA beneficiaries with copies of the death certificate, but has no duty to advise the beneficiaries how to proceed with respect to establishing beneficiary IRA accounts. While there is no duty to advise IRA beneficiaries, the executor could voluntarily advise them if they chose to. But the beneficiaries can do as they please with the IRA, eg either stretch it or cash it out.
The beneficiaries need to know that if they take distributions from the inherited IRA, they cannot roll them over. Also, they need to complete their shares of any RMD for the year of death not taken by the decedent from these or other owned IRAs. The executor could voluntarily provide this info, but there is no duty to do so.