Missed RMD due to Death

Submitted by Christopher Lamb on Mon, 2014-04-14 17:20

A client had passed away after his RBD. There was no RMD taken in the year of his death, there were no contingent beneficiaries, and the custodian has informed the personal representative that the estate will be the default beneficiary.

What are the options for the estate?
What are the options for the beneficiaries of the estate (the two children)?
Are there any issues with the fact that the RMD’s weren’t taken in the year of death, and how should this be remedied?
Would a fiscal year tax reporting period be of benefit?

As usual, thank you in advance for any input.



Submitted by Alan - IRA critic on Mon, 2014-04-14 17:49

  • If the estate can be completed within a few months, the executor can have the IRA partitioned into two inherited IRA accounts for the children without taking any distributions into the estate. Or the executor could request the year of death RMD be distributed to the estate and the estate could pass them through to the beneficiaries using a K 1.
  • The late year of death RMD penalty can usually be waived by the beneficiaries filing Form 5329 for their year of death return requesting a waiver for reasonable cause. Best to complete that RMD before filing the Form.
  • The beneficiaries will both have to use the decedent’s remaining life expectancy for their RMDs, reducing the Table I divisor by 1.0 each year.
  • Fiscal reporting year for the estate is sometimes used to turn the 5 year rule into a 6 or 7 year period. But there will be a longer stretch here because the 5 year rule does not apply for deaths after the RBD.
  • More info in the event the IRA custodian has problems with assignment:  http://www.ataxplan.com/bulletinBoard/ira_providers.cfm

 

  • The timing and order of the year of death RMD, and assignment of the IRA out of the estate to the beneficiaries is not critical, and can be done in light of the nature of the estate and what will work best.

 

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