Inherited IRA Notification

Submitted by William Laing on Wed, 2020-09-30 23:45

Hello and thank you in advance for your help.

Is there any requirement a beneficiary to be notified that they inherited an IRA? I was only told in a phone call, was told a percentage and an amount. My son was was told the same percentage and about half the amount I was told.

Should there be a paper notification?

Bill



Submitted by Alan - IRA critic on Thu, 2020-10-01 01:43

It’s the responsibility of the executor or other person responsible for coordinating the estate as established by the IRA owner.  Sometimes the IRA owner will advise the beneficiary of the details at some point pre death, but the beneficiary must also secure a copy of the death certificate to provide the IRA custodian to have the IRA retititled or separate accounts created if more than one beneficiary. In many instances, the IRA custodian nor the beneficiary is notified and if there is no activity for a long period of time, the IRA could be escheated to the state after distribution and tax withholding. Notificiation all starts with how the IRA owner has planned his/her death.

Submitted by David Mertz on Thu, 2020-10-01 12:38

  • You didn’t say who passed along this information.  The IRA custodian is required to follow the beneficiary designation provided by the participant.  With the individuals (rather than a trust or the estate of the decedent) designated as the beneficiaries of the IRA, the responsibility of the executor of the decedent’s estate is largely limited to notifying the IRA custodian of the decedent’s death by providing them with a copy of the death certificate (or providing a copy of the death certificate to the beneficiaries so that they can notify the custodian of the death), providing any information to the custodian that would be useful to the custodian in locating the beneficiaries, and perhaps notifying the beneficiaries that they are designated beneficiaries so that they can initiate contact with the IRA custodian in the event that the IRA custodian has not yet made contact.  With individuals designated as the beneficiaries, the executor has no role in actually dividing the IRA among the beneficiaries.
  • If there were multiple IRAs, it’s possible that there were different beneficiary designations on each.  If you were the beneficiary of some percentage of one IRA and your son was the beneficiary of the same percentage of a different IRA, it’s extremely likely that the dollar amounts would be different.  However, equal percentages of a particular IRA would have equal dollar values.
  • If the IRA is largely invested in particularly volatile investments, the dollar value could vary greatly over even short periods of time and the dollar amounts stated could vary accordingly.

Submitted by William Laing on Thu, 2020-10-01 19:55

Sorry, it was my brother who passed. There are five beneficiaries.There is only one IRA. He was 74 and had a very conservative investment approach. He would tell me the market went down and he had no change in value. Is the custodian the company that he has the IRA with or the CFP? Either way, it was a phone call. No email or paper trail that I can keep. The CFP called and then sent me an IRA distribution form with no amounts or percentages listed. I just think this is strange to not have any other notification. Is it just me or is that all that is required by law?Thank you for your help,Bill 

Submitted by David Mertz on Thu, 2020-10-01 23:27

  • The custodian is the trustee that holds the funds that are in the IRA.  An IRA custodian is either a bank or a non-bank entity approved by the IRS.  A CFP would generally not be the custodian but would make use of a separate IRA custodian to service the account and the CFP would typically be acting as a go-between.
  • It sounds like your brother established this IRA through this CFP, which is why this CFP has contacted you.
  • Unless the IRA agreement requires it, an immediate distribution to the beneficiaries should not be required, so unless you requested or desire a distribution you should probably not be completing a distribution form.  Instead you completing a transfer form to trustee-to-trustee transfer your share to an inherited IRA for your benefit which would allow you to spread distributions out over a number of years, subject to the distribution requirements for beneficiaries.  Once a non-spouse beneficiary receives a distribution, it cannot be rolled over to another IRA to be able to continue to defer this income.  A non-spouse beneficiary is only permitted to move an inherited IRA by non-reportable trustee-to-trustee transfer.
  • Since you generally have the option to spread distributions over a number of years, it doesn’t seem to make much sense to complete a form to request any actual distribution without first knowing the amount and from that being able to determine the tax consequences to you.  If the form is actually for a transfer and not a distribution, you don’t need to immediately know the percentage or amount other than to be able to verify that the transfer to your separate inherited IRA was of the correct amount.  (Sometimes the same form is used for both distributions and transfers with some way to identify the particular transaction being performed.  Unfortunately, using the same form can make it easier for mistakes to happen, such as an irrevocable distribution when a transfer was actually the intent.)
  • I don’t know that there is any particular requirement that the CFP or custodian make you aware of the share percentages of other beneficiaries.  All you would need to know to be able to determine what teh value of your share is would be your percentage as specified in the beneficiary designation and the total value of the IRA, and you can presume that the remainder is divided among the other beneficiaries according to their own percentages.

Submitted by William Laing on Fri, 2020-10-02 16:21

Thank you. This helps. It may be the transfer to transfer. He mentioned setting up an inherited IRA. I don’t need to know the other beneficiaries’ percentages. I was mostly hoping to get my amount in writing before I made a decision. The CFP wants me to keep it with his company and do an in-kind transfer of assets. Which is hard to determine except by basing it on his word. He said my brother had an 8% corporate non-callable bond, but also some oil stocks. That doesn’t tell me much of anything. Thank you for your help. The terminology can be confusing. Bill

Submitted by Alan - IRA critic on Fri, 2020-10-02 20:04

If this guy knows the current value of the IRA and your inherited % and is not making both those numbers clear to you, I would transfer this inherited IRA elsewhere.

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