Nonresident beneficiares
I have a situation where a U.S. resident has died leaving a sizeable IRA. His beneficiaries are his four children. Two are U.S. residents and two are residents of Australia. The account will be split into four seperate IRAs prior to September following the year of death so that each child can use his or her own life expectancy to distribute the IRA. However, the foreign beneficiaries are being encouraged by the broker to distribute their portions (about $500,000 each) as a lump sum since they do not want to hold an inherited account for the benefit of foreign beneficiaries. They have contacted several brokers who have also said that they will not set up a inherited accounts for the benefit of nonresident beneficiaries. Is there a way for them to preserve the stretch and avoid lump sum distribution treatment?
Permalink Submitted by Bruce Steiner on Tue, 2008-12-30 23:37
Perhaps a trust that is treated as being domestic rather than foreign for income tax purposes.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Al Fry on Wed, 2008-12-31 00:14
It shouldn’t be a problem if they have a SSN or a US Tax ID. If they do not have one, they can apply for one with a W-7.
Permalink Submitted by Denise Appleby on Wed, 2008-12-31 00:27
…information on the ITIN is available here http://www.irs.gov/individuals/article/0,,id=96287,00.html
Permalink Submitted by mk foss on Wed, 2008-12-31 03:50
I’ve heard of this problem before. A US citizen living abroad has difficulty opening an account with a foreign address. When financial rules were tightened up after 9/11 this problem was created.
If it’s tough for a U.S. citizen, imagine how rough it would be if you just had an ITIN.
Permalink Submitted by Denise Appleby on Wed, 2008-12-31 04:14
Could another issue be that the broker is not licensed to provide investment services to foreign residents? Since a broker may need to be licensed in a State in order to service clients in that State, there may be some issues with servicing clients with a foreign address- which would explain why none of the brokers want to take on the accounts. Someone with experience as a broker may be better able to speak to that.
Permalink Submitted by Al Fry on Wed, 2008-12-31 04:18
This is very common with NQ annuities. If the country has a tax treaty with US, the bene can avoid tax withholding by filing a W-8BEN with the carrier. He does have to have the ITIN to get the inherited contract and file the W-8BEN.
Permalink Submitted by Denise Appleby on Wed, 2008-12-31 04:30
[quote=”[email protected]“]This is very common with NQ annuities. If the country has a tax treaty with US, the bene can avoid tax withholding by filing a W-8BEN with the carrier. He does have to have the ITIN to get the inherited contract and file the W-8BEN.[/quote]
Good point.
It’s the same with brokerage IRAs. The IRA has to be opened in order for the beneficiary to receive the assets in his/her inherited IRA. The broker that services the decedent’s IRA is usually the broker for the inherited IRA by default. but I think there is an issue of the inherited account being eligible to engage in trading without a broker who is authorized to broker the trades. Of course, I could be wrong , but… if that is the case, the broker would not be willing to keep an account for which they can’t trade, since that is how they make money on the account .
The solution may be to move the funds via a trasnfer to a firm like TD Ameritrade, where the individual is responsible for managing the account?