Estate as Beneficiary

Submitted by David Mitchell on Tue, 2022-08-23 16:45

Good Afternoon. I have a client that purchased an IRA annuity through his previous advisor. The beneficiary of the IRA annuity is the deceased clients estate. Is it possible to have the IRA assets retitled into an inherited IRA for the beneficiaries of the estate? My concern is the estate will likely have to remain open, distribution options are less favorable and estate tax rates are less favorable. Thanks in advance for your reply. -Ralph



Submitted by Alan - IRA critic on Tue, 2022-08-23 17:39

  • It is possible for the executor to assign the inherited IRA out of the estate to separate inherited IRAs for each beneficiary, but I suspect this will be much more difficult with an insurance company custodian than with a brokerage inherited IRA. If the insurance company refuses to cooperate with the assignment request the executor should pursue a direct transfer to a standard custodian, typically a brokerage firm, that is more likely to comply with a request for assignment from the executor. Note that such assignment does not change the beneficiary RMD requirements, which are the 5 year rule if client passed prior to RBD or the remaining LE of client is they passed on or after RBD. 
  • If the above does not work, and distributions must be made to the estate, the estate 1041 can pass through the distributions on a K 1 to each beneficiary to be taxed at their respective marginal rates. If distributions to the estate are the only option, the insurance company should be asked how this can be spread out. Typically, the executor will not want the estate to remain open unless the amounts are large enough to justify it and the cost of filing 1041 forms multiple years.


Submitted by Justin Watling on Mon, 2023-02-13 16:09

Once the account is assigned to a beneficiary (say, the brother odf the deceased accoiunt owner), what are the beneficiary’s options going foraward? DOes it mtter if the beneficiary is 70 and only two years older that the original owner?



Submitted by Alan - IRA critic on Mon, 2023-02-13 16:24

No. If the estate inherited the IRA assignment out of the estate will not change the RMD for the estate beneficiary, it will only give the beneficiary direct control of the account and it’s investments and allow the beneficiary to name their own beneficiary. See the first bullet point above. The age or relationship of the estate beneficiary does not matter. 



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