IRA left to estate and fiduciary duty
Can cashing out an IRA be a breach of fiduciary duty? My aunt’s contingent beneficiary (primary predeceased) is her estate. My sister is the executor, and the attorney told her the only option was to cash out the IRA. She agreed several months ago, and did not tell the rest of the beneficiaries. I just found out. My aunt was in her 70s, so I think we should have been able to stretch the IRA using her life expectancy. Is there anyway to undo the damage? If not what is needed to consider an action as a fiduciary duty breach? The attorney demonstrated a stunning lack of knowledge when I questioned him about it.
Permalink Submitted by Alan - IRA critic on Sat, 2016-08-27 17:01
There is no way to undo the damage once the distribution has been made. Of course, paying out the respective shares with a K 1 will enable each beneficiary to pay taxes at their own marginal rates rather than the higher rates for an estate. There is also the potential for a breach of fiduciary duty against your sister, but is the amount of the distribution enough to warrant the bad blood that would follow? Less toxic would be to get your sister to proceed against the attorney for the bad advice, if she can prove that he told her this.
Permalink Submitted by Linda Fleck on Tue, 2016-08-30 17:34
Thank you for your answer. I figured we were stuck with the distribution. Unfortunately the attorney and executor are friends, so going against the executor is the only option. Do you know how the court would figure the dollar amount of the harm? figuring this out would help in deciding what to do. Would I assume a rate of return and a tax rate, and then compare what happens if the IRA was maintained vs cashed out. If so what rate of return?