Are Inherited IRA’s exempt from IRS claims for estate taxes?
I have a client who, along with his brother and their six total children, inherited their father’s sizeable IRA (>$1 million). The IRA assets were distributed about two years ago but the estate is still not closed. As the estate is being wound up and assets sold to pay substantial bank loans and pay estate taxes, it now appears that the estate will not have sufficient remaining assets to settle the IRS claim or the claims of some creditors against certain illiquid assets. Can the IRS come after these Inherited IRA’s? If so, what are the odds that they will? Apparently, the brother has already spent his share and my client is wondering if “spending” his share would keep it out of the hands of the IRS.
Permalink Submitted by Alan Spross on Tue, 2011-04-05 19:32
Yes, the IRS could go after the non probate assets to pay the estate taxes. No way to tell if they would or not, but the chances increase proportionately with the amount of estate taxes due. Having the assets split up 8 ways may create 8 times the work for the IRS though.
And if one or more of the 8 are insolvent, the question also arises whether the IRS would look to the others to make up difference. I don’t see spending the money as providing protection unless you are also insolvent.