Estate IRA and the IRS
My father’s IRA has been transferred to his estate, and my brother and I are the beneficiaries of the estate. Based on a number of discussions on this board and a bulletin board statement posted at ataxplan.com, I have come to the conclusion that the executor of my father’s estate can (in theory) transfer the IRA assets to inheritor IRA accounts for my brother and me. This will allow us to distribute the proceeds over five years, and the executor will be able to close the estate.
An Inheritor Services Group representative at Fidelity told me that Fidelity will transfer the estate-held IRA to inheritor IRA accounts if the executor requests this. However, she also stated that she did not know how the IRS views this (she thought the IRS is silent on this issue) and she hinted that the executor might be liable in the future if either my brother or I failed to distribute and/or pay taxes since the executor authorized the (possibly) grey area transfer.
Does the IRS care if an estate IRA is transferred to inheritor IRAS as long as the proceeds are correctly distributed and taxes are paid?
Is the executor still on the hook if a beneficiary messes up the distributions or taxes after the estate IRA is transferred to inheritor IRAs and the estate is closed?
Thanks in advance for any help.
Permalink Submitted by Alan Spross on Fri, 2007-11-02 20:04
The IRS is principally concerned with collection of taxes and therefore the timely distribution of IRA assets per their Regs. They have also placed some reporting responsibilities on IRA custodians to inform beneficiaries of RMD requirements. As long as Fidelity is willing to set up the inherited IRA accounts, they can’t be running into problems or they would not set up those accounts. I have not heard of any executor’s bearing any responsibility, as the IRS would go after the beneficiaries holding the separate accounts first. Following is a link to what you refer to from ataxplan for anyone else’s perusal:
http://www.ataxplan.com/bulletinBoard/ira_providers.cfm
Permalink Submitted by Wayne Strayer on Tue, 2007-11-06 20:03
Just an update for those interested in the issue of transferring IRAs held by an estate (estate is the beneficiary) to inherited IRAs for beneficiaries of the estate. As noted in my original post, a Fidelity representative told me that the estate held IRA could be transferred to an inherited IRA at the request of the estate executor, but Fidelity neither recommended nor discouraged it (she stated that the IRS is silent on this practice). Well, when the executor contacted Fidelity about starting the process the representative (not the same rep) pushed back, stating that Fidelity would not carry out the transfer. Rather than fighting it, we checked with Vanguard and they seem willing to do it, so it looks like we will be consolidating estate held IRAs and tranferring to an inherited IRA at Vanguard.
Be aware that there is some confusion regarding this process at Fidelity, which was cited as one of the companies willing to do it.
Permalink Submitted by Alan Spross on Tue, 2007-11-06 21:45
Thanks for the update. Sounds like either there has been a change of policy or some training issues exist for their CSRs. No doubt that accounts with wasting assets are not as attractive to IRA custodians as other accounts. And potential legal issues are factored in as well, and IRAs paid to an estate present increased exposure in that area.