Court Ordered IRA division between siblings? Is there a process for making it non-taxable?
Mother dies in January of 2019! A few months before she died she changed her beneficiary listing from 50/50 split between her son & daughter to 100% to her daughter. The son is going to court to obtain 50% of two BDA IRAs which is already 100% in his sister’s name as a fbo. IF a court order is generated indicating that the daughter move half the assets to two BDA IRAs in her brother’s name…will the transfer(s) be tax-free or taxable? IF taxable, any solutions or guidance in making this transfer between sister and brother non-taxable? I have never seen this addressed before in any publication…
Permalink Submitted by Alan - IRA critic on Tue, 2021-04-06 19:11
Such a court order might be handled like a divorce settlement as a non taxable and non reportable transfer. However, the inherited IRA custodian may not be comfortable with the court order, and some court orders disregard often obvious tax code issues. If the custodian is larger, they may be more likely to have a procedure in place for this. Another issue is whether a given order is deemed to have created separate inherited IRA accounts by the 12/31/2020 deadline allowing the younger sibling to use their own age for RMDs. Yet another is adjustment for distributions the daughter already took possibly including mother’s 2019 year of death RMD if her RMDs had begun.