Traditional IRA with Estate as Beneficiary

Submitted by Samantha B on Tue, 2021-05-11 02:23

My father passed suddenly at the age of 61 without a will and had a traditional IRA with PNC Bank. He did not indicate any beneficiaries. My two sisters and I are the only heirs to his estate. I am the estate administrator. PNC Bank is saying that I only have two options: 1) take lump sum or 2) transfer the funds to a 10 year inherited IRA account with the estate as the beneficiary and take distributions over a ten year period. We do not like option 1 because of the obvious tax implications. We do not like option 2 because this would cause the estate to remain open for the next ten years, requiring an annual estate tax return and other fees.

I have been advised that the best option would be to complete a “trustee to trustee transfer to a friendlier custodian” so that my sisters and I can set up three individual inherited IRA accounts and close the estate. My questions are:

1) Can a trustee to trustee transfer be completed immediately or do I first need to transfer the funds to an inherited IRA account with the estate as the beneficiary and then complete the trustee to trustee transfer?

2) Who are these “friendlier custodians” that will permit my sisters and I to set up three individual IRA accounts upon trustee to trustee transfer?

Thank you for your time and assistance.



Submitted by Alan - IRA critic on Tue, 2021-05-11 16:18

Sorry to hear of your loss. It seems like banks never tell beneficiaries their best option in this situation, which is to have you as executor assign the inherited IRA out of the estate to inherited IRAs for each of you. You would then each have your own inherited IRAs to manage and distribute as you wish.
I suggest you call the bank and ask for an IRA specialist. Whoever you talked to earlier does not know the rules, since father passed prior to his RBD with his esetate as beneficiary. That triggers the 5 year rule, not the 10 year rule.  So even if you can get the IRA assigned out of the estate, you each will have 5 years to drain your inherited IRAs. PNC is large enough to have specialists that understand that you can assign the IRA as executor. If they state flat out that they will not accept assignment, then your only option is to transfer the inherited IRA to another more cooperative custodian. Note that custodians do not like estate IRAs and they tend to always try to rush out a distribution, which is not taking care of their customers. There is no reason that the estate needs to be open any longer than normal. Until this is resolved be sure to tell the bank that they are NOT to make a distribution to the estate. They cannot do so without your permission as executor.

Submitted by Samantha B on Tue, 2021-05-11 17:43

Thank you very much for your condolences and response. Are you aware of any “more cooperative custodians”?

Submitted by Alan - IRA critic on Tue, 2021-05-11 18:34

I would first verify with PNC about accepting assignment, as the first person may have been wrong, and certainly was not aware of the 5 year rule, which is pretty basic. Once efforts with PNC specialists have been exhausted with no success, you might check with other large firms like Fidelity or Schwab to see if they would accept a transfer of the inherited estate IRA. You might try your own IRA custodian if you have one since they might be more cooperative for someone who already has business with them. 

Submitted by Bruce Steiner on Thu, 2021-05-13 19:58

Keeping it in the estate can give you an extra year by using a fiscal year.  It will also let you offset administration expenses against the IRA distributions.

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