No beneficiary named
A new client’s brother died without naming a beneficiary for his IRA. The custodian already paid the proceeds to the estate. Does this eliminate any chance of future deferral, thereby requiring all the tax to be paid in the current year? There is also a home in the estate that must be maintained, can partial distributions be made to pass through some of the income to help reduce the tax burden?
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2014-12-15 20:12
Once the custodian made that distribution to the estate, it created an irrevocable taxable event for the entire death benefit and prevented the estate from assigning the IRA to the estate beneficiaries, where they could have taken advantage of a limited stretch period. The estate must now pass through the entire distribution to the beneficiaries of the estate on a K1, or must pay the income tax at the much higher estate rate, and distribute later. Unless there was some unique situation, the executor should not have permitted the IRA custodian to make the lump sum distribution, since it is unlikely that the IRA agreement required that. The client may have legal recourse against the executor (or perhaps client is the executor and cost himself some tax deferral).