IRA – no designated beneficiary, pour over will in place

Submitted by Jared on Fri, 2013-12-13 02:36

I’m looking for assistance with an issue. Decedent passed away in March 2013 (post RBD) leaving a traditional IRA with Charles Schwab as custodian. Unfortunately, no beneficiary was ever designated. Decedent had a living trust and a pour over will in place to transfer any remaining assets to the trust upon death.

It is my understanding that the estate will the default beneficiary. However, I’m looking for some guidance and/or suggestions on the mechanics of this given the fact that a pour over will is in place to transfer assets to the trust.

Thanks in advance.



Submitted by Alan - IRA critic on Fri, 2013-12-13 03:08

  • Jared, my copy of the Schwab IRA agreement (ed.2010) indicates the estate is the default in this case, and further that a single distribution will be made by the end of the year following death (12/31/2014). To avoid that catastrophe, a trustee transfer to another IRA custodian that will allow the decedent’s remaining life expectancy to be used appears beneficial in most cases.
  • The pour over will probably requires probate, but the IRA distribution(s) should end up in the trust, which would not be qualified for look through because it was not listed on the IRA beneficiary clause. That makes the oldest trust beneficiary immaterial with respect to RMDs, but the decedent’s limited remaining life expectancy should provide enough of a stretch to spread out the taxes due.

Submitted by Jared on Fri, 2013-12-13 03:32

Thanks for the quick response.

  • Any suggestions for an IRA custodian that will allow this stretch?  What about American Funds (Capital Bank and Trust) or Vanguard?
  • Does this mean the estate will have to remain open until the IRA is completely distributed, assuming stretch is desired?
  • Also, decedent did not take 2013 RMD prior to death.  Any suggestions for getting this accomlished prior to year end?  Custodian has not yet been notified of deceden’ts death.  I can only imagine the hoops that will be required upon notification.

Submitted by Bruce Steiner on Fri, 2013-12-13 14:13

I’m surprised you had a problem with Schwab.  I would think pretty much any custodian should be OK.  I would start with whichever one was my first choice.  The estate can either stay open, or distribute the inherited IRA in kind to the trust, which can then stay open or distribute the inherited IRA in kind to its beneficiaries.  Where has the lawyer handling the estate been since March?  Among other things, the estate tax returns are due this monty.  There’s still some time left this year so they should be able to take this year’s distribution by year-end.  Bruce Steiner, attorney, NYC, also admitted in NJ and FL

Submitted by Jared on Mon, 2013-12-16 04:02

Thanks for the feedback, Bruce.  There isn’t a known problem with Schwab yet.  I was just asking about other custodians becase of Alan’s comment.  It looks to me like Schwab does allow for the inherited IRA to be established with distributions based on decedent’s remaining life expectancy.   I’m not sure about distributing the IRA in kind or if that will even be necessary.Thanks again Alan and Bruce for the comments.

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