unrelated individual inherited IRA through will

Submitted by Harold Morrow on Fri, 2017-04-07 21:01

I have a client (she) that inherited an IRA from an unrelated individual (he) that had reached his required beginning date. She was not listed as the beneficiary on the IRA. The attorney and personal representative cashed the IRA and had the estate pay the income tax on the IRA. The balance, cash, was distributed to my client. Now the attorney writes a letter to her saying additional taxes were due and so she needs to send a check for the balance to the attorney.
I feel they should have transferred the IRA to her as an Inherited IRA and let her draw the RMD’s, or more if she needed, and then she would pay her own taxes.
Is there a valid reason for the personal representative to handle it the way they did and can they require my client to pay any additional tax?



Submitted by Bruce Steiner on Fri, 2017-04-07 21:43

  • Whether she or the estate pays the income taxes depends on when the estate collected the IRA, when it distributed the proceeds to her, and possibly on what elections the estate made on its income tax returns.  If she owes income taxes, she would pay her income taxes directly to the government.
  • If the estate is large enough to pay estate taxes, then depending on what the Will says, and possibly on other things, she may have to contribute to the estate taxes.  
  • I agree that the personal representative should have either distributed the IRA to her in kind as an inherited IRA (in which case she could have taken distributions over the IRA owner’s life expectancy as of his death as if he hadn’t died), or else taken distributions over that period (or faster to the extent the distributions would offset estate administration expenses).  She may want to consult with counsel to see if she has a claim against the personal representative for not doing this.
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL


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