Prior Decedent Rule
IRC Sec. 691(c) that allows a bene of an IRA a deduction for estate taxes attributable to the IRA pre-tax amounts mentions a “prior decedent rule”. If the bene of an IRA doing a stretch dies before he has been able to deduct the entire amount, does this mean his bene will be able to continue to deduct those amounts? And if the IRA was subject to estate taxes in the benes estate, the subsequent bene would be able to deduct both amounts?
Permalink Submitted by Alan Spross on Wed, 2008-06-25 18:47
Al,
Not exactly an authority on this, but my interpretation of the code is that the successor beneficiary would be able to continue eligibility for the IRD deduction. However, if the first beneficiary passed within a few years of the owner, it appears that Sec 2013 would generate a sizeable credit against the first beneficiary’s estate tax emanating from the assets of the owner. In other words, if the beneficiary dies within a few years per schedule in Sec 2013 of the owner, this credit provides a break from double taxation of the same assets. Still, if both owner and beneficiary were subject to estate taxes, a new computation should be made to determine the IRD deduction available to the successor beneficiary.
I would guess that we are just starting to experience the passing of the first group of beneficiaries, and if the initial IRD deduction is often overlooked, the second deduction would be even more overlooked, ie if is can be correctly computed in the first place.
Permalink Submitted by Al Fry on Thu, 2008-06-26 02:51
TKU, Alan. The info was verified later by a Tax Attorney.