Estate IRA Distribution rules, transfer and tax liability
My daughter, age 60, passed away March 2013 and the beneficiary of her traditional IRA was “estate of Sarah ___________________”. Me and my spouse, 86 years of age, are the co-executors and beneficiaries (50-50%).
The Commissioner has not approved the inventory or Statement in Lieu of Accounting. We need to distribute the assets prior to 12-31-13 in order to take advantage of the gifting she did prior to her death ($100M) which will offset the majority of the income tax liability due to the IRA distribution.
Is there any other option, other than the lump-sum distribution, the IRA assets can use for distribution purposes without creating a tax liability? Once the taxes are paid we assume they can then be transferred to a trust account. From what I’ve read the executor can only choose a lump sum distribution which becomes a taxable event. I’ve read that an estate IRA cannot use a 5-year distribution to reduce the income tax liability?
It is my understanding the estate tax return and the final tax return for the decendant can claim the income and or deductions – to try and limit the tax liability. Meaning, the income can be declared on the estate tax return or the decedent’s final tax return. Likewise with the deductions – is this correct?
Permalink Submitted by Bruce Steiner on Tue, 2013-12-10 22:31
The executors have to collect the IRA by the end of the 5th taxable year following her death. Distributions to the estate after her death won’t offset her charitable gifts while she was alive, since her final tax year ended with her death. The IRA benefits, as well as her other assets, will then go in accordance with her Will. If she left her estate to you and your spouse in trust, her assets will go to you and your spouse in trust. If she left her assets to you and your spouse outright, her assets will go to you and your spouse outright. Income received by her estate will go on her estate’s income tax returns. Distributions by her estate will carry out income to the recipients. The above is just a general summary of the rules. The attorney handling the estate should be able to give you more specific advice, and should be able to assist with the tax planning, including when to take distributions from the IRA and when the estate should make distributions to you and your spouse as the beneficiaries of the estate. If she died in March, the estate tax returns (if any) are due this month. I suggest you consult with competent tax/estates counsel. Bruce Steiner, attorney, NYC, also admitted in NJ and FL.