deceased IRA owner

Submitted by Richard Stumpf on Thu, 2019-11-07 22:11

Client died in Jun 2018. Large number of beneficiaries, including charitable organizations and individuals. Executor (a beneficiary also) is a busy guy, and he’s been focusing on settling other parts of the estate. The IRA isn’t large, and dividing it up so many ways beneficiaries will end up with less than $10,000 each.

We are approaching the Dec following the year of death, there have been no RMDs so far this year, and we have charitable beneficiaries on the list.

I know the cleanest thing would be to get it all distributed before year end, but I don’t know that I can make that happen.

What are my consequences if nothing happens in this account by year end? And I’m asking both for RMDs and account distributions.

Thanks.



Submitted by Alan - IRA critic on Sat, 2019-11-09 16:16

  • If these beneficiaries were named on the IRA and nothing happens by year end, the RMDs will fall under the 5 year rule if client passed prior to his RBD, or over client’s remaining life expectancy if he passed on or after the RBD. Charities had to be paid off by the beneficiary determination date (9/30/2019) in order to be eliminated from determining the RMD. Since the charities remain, the IRA account is treated as having no designated beneficiaries.
  • That said, the separate account provisions described in Reg 1.401(a)(9)-8 allow individuals to create separate inherited IRA accounts by the end of the year following the year of death (12/31/2019). Therefore, if the individual beneficiaries create their own separate inherited IRA accounts by year end, each beneficiary that does so can use their own age to determine their beneficiary RMDs.
  • Some experts including Natalie Choate cast doubt on the separate account rules working if ALL individual beneficiaries do not create separate accounts, and Pub 590 B refers to separate accounts under a paragraph titled “multiple individual beneficiaries”. No mention is made of non individual beneficiaries. Still, if the interested individuals act quickly to create their separate accounts, I would advise them to use their own ages for their RMDs. The others are left without separate accounts with the charities and would lose most of their stretch. I have not heard any reports of the IRS challenging this outcome.
  • While your post did not say that the IRA was left to the estate, the involvement of the executor suggests that it may have been. That changes all of the above points, except that either the 5 year rule or remaining LE of the decedent will apply regardless of the executor assigning the inherited IRAs to these individuals. The separate account rules do not apply to estates or trusts. The executor will have to make sure that the 2019 RMD is distributed to the estate and he can pass it through to the beneficiaries. And he can still assign the inherited IRA to the estate beneficiaries, but that will not change the RMD schedule that applies to all of them.

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