I have a client who passed away in 2016. He has two step-children which were not adopted and is also survived by his sister and a brother-in-law.

Client had a 401(k) with Northrup Grumman in which he named his pre-deceased spouse and his father as beneficiaries. Based on the Plan description with no living beneficiaries, the money had to be distributed to the Estate in probate. The distribution was made in March of 2019.

The tax preparer is trying to set up a delayed 60 day rollover. The sister is on medi-cal and cannot receive the money or it will jeopardize her pubic benefits. She could disclaim and her brother-in-law could step in but we’d need court approval to reach the funds and distribute them to another person.

Would the IRS allow a delayed roll-over in this case? Would we need a private letter ruling?

Any other ideas about how to avoid these excessive taxes which would be due?

Or, is the estate out of luck!