Estate Owned IRA

Submitted by Gary Senske on Thu, 2017-01-12 19:57

My mom and dad died 3 weeks apart and my mom (the 2nd to die) didn’t have time to take ownership of the IRA.
There were very complex instructions for beneficiary designation that resulted in the IRA needing to go my Mom’s estate because she did not take ownership in her IRA. The advice we have received suggests that we transfer the IRA into an Estate owned IRA and then once the estate is settled I (as exeucutor) can direct the custodian to split the IRA into Inherited IRAs for me and my sister outside of the estate.
My question is whether this transaction is a taxable event to us or whether the IRA stays within its tax-deferred status and we then take RMDs as normal?



Submitted by Alan - IRA critic on Thu, 2017-01-12 22:26

  • Please confirm this fact pattern:  Dad owned the IRA, passed AFTER his required beginning date with Mom as the designated beneficiary and there was no contingent beneficiary named (would have enabled consideration of a disclaimer action). Mom’s estate is now the IRA beneficiary.
  • If above all correct, you as executor can assign the inherited IRA out of the estate to separate inherited IRA accounts for her will or intestate beneficiaries if no will (which I trust are you and sister). This assignment is not a taxable event and you need to resist any pressure from the IRA custodian to accept distributions from the IRA, particularly a lump sum distribution. In this situation, both of your inherited IRA RMDs must be based on your mother’s remaining life expectancy and your own ages cannot be used because you were not designated beneficiaries on the IRA. Finally, you will also have to complete the year of death RMD of your father if he did not complete it before passing. I would not take RMDs as estate executor unless you cannot assign the IRA for a considerable time.

Submitted by Bruce Steiner on Fri, 2017-01-13 16:59

  • If Alan’s guess as to the facts is correct, you might nevertheless have the executor take some of the required distributions.  Many estates are too small to pay any Federal estate tax, so they would take the administration expenses as income tax deductions.  Many estates don’t have enough income to use the deduction for the administration expenses.  Sometimes it’s the case that taking IRA distributions in the estate results in little or no income tax as a result of the administration expenses.
  • If there were in fact “very complex instructions for beneficiary designation,” then perhaps dad’s executors may be able to disclaim the IRA and have it go to the contingent beneficiaries, who would get a longer stretch.  Note that in some states a disclaimer by an executor requires court approval.  If that’s the case, you should allow sufficient time for that.
  • The lawyer handling dad’s estate will know the facts, and should be able to give you more specific advice.  What does he/she recommend?
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

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