Custodian Won’t Reissue Uncashed RMD check to estate

Submitted by Cheryl Van Beek on Sun, 2016-10-16 15:03

Decedent passed away before they were able to cash the RMD check that was issued to them from a traditional IRA for 2015 and the check was never deposited. Since it was constructively received by deceased before death, my understanding is that it should go to deceased’s estate, but the custodian will not reissue the (now inactive) check to the decedent’s estate, insisting they will only pay it to the account listed Beneficiary. This account listed Beneficiary is the same person who will be the Personal rep and same person who would inherit from the estate. Does this pose any tax problem to the beneficiary since technically that RMD had been issued to the decedent while she was still alive? Are there any additional things to watch out for in this case, or to do to make sure there are no tax penalties to the beneficiary or estate? This is a non spouse Beneficiary (child of decedent).



Submitted by Alan - IRA critic on Sun, 2016-10-16 18:27

You are correct. The uncashed check is an estate asset. The personal Rep should have letters testamentary which will allow the rep to deposit the check into the estate account. The year of death RMD was completed by the distribution check and the IRS will see it reported on the decedent’s final return as is consistent with the 2015 1099R. There could be probate court issues if this check were to be re issued to the beneficiary as that could foul up the estate accounting due to bypassing the estate.

Submitted by Cheryl Van Beek on Sun, 2016-10-16 23:06

Thank you. Any suggestions on how to change custodian’s mind?  They say they won’t reissue the old check  and instead insist on paying it to the beneficiary as above. There is only the 1 beneficiary of the IRA and of the whole estate, no other interested parties, it’s the same person who will be Personal Rep. If they won’t reconsider, would it be ok in this scenario? Thanks again.

Submitted by Alan - IRA critic on Mon, 2016-10-17 00:24

Why does the PR not want to simply endorse the check over to the estate? That would eliminate arguing with the custodian. The decedent has a 1099R for the first check, right?

Submitted by Cheryl Van Beek on Mon, 2016-10-17 00:35

The check has been stopped and redeposited into decedent’s account. I believe the 1099 R shows the payment being made and the reversed. Thanks.

Submitted by Alan - IRA critic on Mon, 2016-10-17 01:27

If the 1099R has been rescinded, it makes sense that the custodian will now re issue to the account beneficiary, and a 1099R to the beneficiary. Since the year of death RMD is now being issued in a later year, the beneficiary is the responsible party to distribute the RMD and must file a 5329 to request that the IRS waive the penalty for the RMD being late. The IRS will likely waive it, but the 5329 needs to be filed.

Submitted by Cheryl Van Beek on Mon, 2016-10-17 17:23

Thank you so much. (Sorry I think i put this in the wrong place the firts time i posted it) Yes, the 1099R shows $0 for distributions and on the details section shows it was paid and then adjusted off to show $0.  If this beneficiary receives this RMD at the end of 2016 (for year 2015), I assume the beneficiary files 5329 with their own 2016 return? And would this be the 2015 version of 5329? If that’s the case, presumably, they report that income on their 2016 1040, but there wouldn’t be any change to their 2015 return that would require them to amend it right? Can this Beneficiary still stretch their future RMDs from this account over their life expectancy or must they take the 5 year pay out?  

Submitted by Alan - IRA critic on Mon, 2016-10-17 20:08

  • While the RMD is taxable in the year distributed to the beneficiary (2016), the 5329 is to waive the penalty for not completing the year of death RMD in 2015. Therefore, a 2015 5329 should be filed, but no 5329 is needed for 2016. The IRS may accept the 2015 stand alone if the beneficiary wants to avoid the 1040X, but there is a chance they may request a 1040X with it even though there is no function served by the 1040X. The wording in the 5329 Inst is not very clear, but technically the IRS is asking for the 1040X as well.
  • The beneficiary is a designated beneficiary and can take RMDs over their single life expectancy. They also have the option of the 5 year rule if the decedent passed PRIOR to the required beginning date. The confusion the uncashed check does not affect the beneficiary’s RMD options for their own RMD.

Submitted by Cheryl Van Beek on Mon, 2016-10-17 20:36

I thought that I’d read that if a Beneficiary missed an RMD on an inherited IRA they had to choose the 5 year pay out option which I prefer not to do. Thank you very much for clarifying.

Submitted by Alan - IRA critic on Mon, 2016-10-17 21:42

That is not correct. Most all IRA contracts indicate that life expectancy is the default RMD method when there is a designated beneficiary. As such, if RMDs are missed per PLR 2008 11028 the beneficiary can make up the late RMDs and continue life expectancy thereafter. The 5 year rule is an option for death prior to the RBD, but never applies for deaths after the RBD. The only question on making up the late life expectancy RMDs is whether the IRS will waive the penalty when a 5329 is filed to request the waiver. In the PLR, the penalty was due but there is no downside in requesting the waiver, and there is a good chance the IRS will grant it unless the beneficiary is a repeat offender.

Submitted by Cheryl Van Beek on Mon, 2016-10-17 13:53

 Thank you so much. Yes, the 1099R shows $0 for distributions and on the details section shows it was paid and then adjusted off to show $0.  If this beneficiary receives this RMD at the end of 2016 (for year 2015), I assume the beneficiary files 5329 with their own 2016 return? And would this be the 2015 version of 5329? If that’s the case, presumably, they report that income on their 2016 1040, but there wouldn’t be any change to their 2015 return that would require them to amend it right? Can this Beneficiary still stretch their future RMDs from this account over their life expectancy or must they take the 5 year pay out?  

Submitted by [email protected] on Mon, 2016-10-17 21:50

there may be some confusion over beneficary RMD and decedent RMD.  The decedent RMD is what has been discussed and is cleaned up as discussed. But, don’t forget there is also the beneficiary RMD that needs to be taken by year end 2016, and hasn’t yet been missed since death was in 2015. So, the OP will have two RMDs in 2016 that will be taxed.  Correct? -m

Submitted by Alan - IRA critic on Tue, 2016-10-18 00:16

Yes, beneficiary will have two RMDs to report in 2016. Incidentally, if beneficiary of the IRA and of the estate were different, what has occurred could present a legal problem since estate assets have been diverted out of the estate.

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