IRA paid to Estate, checks not cashed
My clients father passed away 10/14/24. He had an IRA account, but the beneficiary was listed as his late wife.
His only surviving heir is his daughter (my client). The custodian and the estate attorney confused my client and issued a check for the entire IRA balance made payable to the estate on 5/6/25. The daughter is also the executor. She never cashed the check because she thought it should be put in an IRA account. The custodian is saying there is no way to unwind this, and the estate must cash the check.
If the estate cashes the check, I assume the entire amount will be included on the 1041 for the fiscal period 10/14/24 to 9/30/24. Perhaps the 65-day distribution rule could apply so the estate can distribute the funds and pass the taxation to the daughter. This would still throw the daughter into higher tax brackets in 2025.
The daughter was hoping she could roll these funds to a beneficiary IRA and spread the distributions out.
Does the fact that the check has not been cashed allow the executor 60 days to roll the funds over to another IRA?
If so, can she set up a beneficiary IRA in her name and bypass the estate?
Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2025-10-14 19:48
No, once that check was issued the only way to avoid a taxable distribution would have been if the custodian would accept the return of the check or stopped payment. Otherwise a 1099R will be issued to the estate.
This might have been avoided if the daughter had instructed the custodian to assign the inherited IRA out of the estate to an inherited IRA for her early on, but some custodians will not cooperate with an assignment request at any point. A distribution to a non spouse beneficiary (including estate) is never eligible for rollover, so in almost all cases once the check is issued the damage is irreversible.
At least if the estate passes the distribution through to the client, it will be taxed at the client’s rate which will be lower than that of the estate.
Unfortunate that the father failed to name a new beneficiary before passing and had not named daughter as a contingent beneficiary to his wife several years ago.