Estate as Beneficiary of IRA
Clients father named his estate as the beneficiary of his IRA. Father was over 701/2 and had begun taking RMD. What options does the executor of the estate have? The brokerage house holding the IRA isn’t helpful and just wants to make a lump sum distribution to the Estate.
Permalink Submitted by Alan - IRA critic on Tue, 2013-01-29 00:49
The key date is his required beginning date, which is a few months after turning 70.5. Assuming that he actually named his estate as beneficiary, a very bad idea, his will determines where the beneficiary interests will go. If no will, then state intestate provisions will determine who gets the funds. For deaths after the RBD, the beneficiaries or the estate can take RMDs over the remaining life expectancy of the decedent, and the 5 year rule does not apply. Further, the IRA custodian cannot force distributions to the estate unless the IRA agreement indicates such, and I doubt if it does. Notwithstanding this, this behavior is typical of IRA custodians working with an estate beneiciary. The executor of the estate can assign the IRA to the will beneficiaries who can create their own inherited IRA accounts, but their RMDs must remain based on the decedent’s remaining life expectancy. IRA custodians frequently want to avoid the extra paperwork for a wasting asset such as an inherited IRA, so the executor will have to be firm with them and resist suggestions of a lump sum distribution unless the IRA agreement permits it.