Unnamed Traditional IRA beneficiary
My client recently discovered that her deceased husband did not name a beneficiary to his IRA. Estate attorney now advises that the proceeds will be in his estate and subject to state estate taxes as well as ordinary income taxes. Is there a way to get the IRA over to her with the least amount of taxes involved ? If so, what kind of IRA could she set up and what would be her income tax issues going forward ?
Mark Russo
Financial Advisor
Hunt Valley, Maryland 21030
Permalink Submitted by Alan - IRA critic on Mon, 2014-08-11 16:43
The first thing to carefully review is the default beneficiary clause in the IRA agreement. Some agreements make a surviving spouse the default beneficiary instead of the estate. But even if the estate IS the default beneficiary, there are several IRS letter rulings allowing the surviving spouse to roll over the IRA to her own if she is the beneficiary under the will. This is simpler if the spouse is also the executor of the will, but not a requirement. While the attached article has been around for awhile, the trend for surviving spouse rollovers has continued unabated and Bruce Steiner (who posts here) indicates that it still applies. http://www.kkwc.com/docs/AR20050125164755.pdf. There should not be a need for the client to get their own PLR unless there are unusual circumstances. The rollover will eliminate the current income taxes and the unlimited marital deduction will eliminate current estate taxes.
Permalink Submitted by Mark Russo on Mon, 2014-08-11 21:42
Thanks, Alan. Great piece from Mr. Steiner on this. Have forwarded to the estate attorney and will let you know how things develop. Mark