IRA paid into and through an Estate….and taxes.
If an IRA has an “Estate'” as primary beneficiary, and no contingent beneficiary named, then upon the Executor disclaiming, it goes full circle back to the estate with no 2ndary bene. So Executor claims lump sum and company pays IRA into the Estate. Then the Estate K-1’s the money out of the estate to the beneficiary in the will. Can they special tax report using 5 year forward averaging and break up the tax on the IRA? 😕
Permalink Submitted by Alan Spross on Mon, 2012-10-08 17:45
No, there is no forward averaging option.
What is the point of a disclaimer here when it accomplishes nothing? With the exception of a surviving spouse, a qualified disclaimer cannot result in funds being re directed to the same disclaimant.
An executor can assign the IRA to the estate beneficiaries before any distribution is made. But once a distribution is made from the IRA, it is taxable. Many IRA custodians push to distribute the entire balance to the estate because it is quicker and easier for them, but unless their IRA agreement says so, they do not have the authority to make a distribution unless the executor requests it. Once the executor requests a distribution it is taxable either to the estate or as a K 1 pass through to the estate beneficiaries.
Permalink Submitted by mk foss on Mon, 2012-10-08 19:05
One other difficulty with the estate as the beneficiary is that the probate court has some control over the timing of distributions to beneficiaries.
If the IRA owner died before the Required Beginning Date – Alan’s suggestion of having the executor “assign” the benefits to the estate beneficiaries works very well.
If the IRA owner was taking RMDs, the date of death RMD must be paid to the estate and whether it can be distributed in the same tax year depends on the latitude that the court allows. In California it may take a while to get on a court calendar.With the older decedent RMDs must begin in the year of death and continue until paid out, this could cause some high income taxes on the estate’s form 1041 if no planning is done.