Second Generation Beneficiary
Father passed away in 2013 after required beginning date. Final RMD for father was taken before transfer to son (sole beneficiary). Beneficiary IRA was established for son in 2014, but son died prematurely in 2014 without his 2014 RMD being taken. Life expectancy of first generation beneficiary is now used for RMD, but must son’s initial (and only) RMD betaken before transfer to second generation beneficiary (presumably then payable to son’s estate) or can RMD for 2014 be taken after transfer by the second generation beneficiary (then payable to the second generation beneficiary)?
Who gets the 2014 RMD?
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-22 18:03
Since the original beneficiary is now deceased, any distributions must be paid to the successor beneficiary that was named by the first beneficiary. The IRA must be re titled showing the successor beneficiary before any distribution can be made and the 1099R for the RMD will be issued under the SSN of the sucessor beneficiary. The only way the RMD would be paid to the estate of the son would be if the son failed to name a successor beneficiary and the IRA default provision specified distribution to the estate.
Permalink Submitted by Anthony Benvin on Tue, 2014-04-22 19:01
Alan, Thanks for the response. Do you have sources for this info?Tony Benvin
Permalink Submitted by Bruce Steiner on Wed, 2014-04-23 01:20
If it’s still within 9 months from the original IRA owner’s death, it may be possible to the original beneficiary’s executors to disclaim. They should consult with counsel before doing anything. Bruce Steiner, attorney, NYC, also admitted in NJ and FL
Permalink Submitted by Anthony Benvin on Wed, 2014-04-23 15:05
Bruce, Thanks for the info. Disclaimer is precluded in this particular case because possession has already passed from father to beneficiary-owned IRA by the son. It does, however, present a strategy for future cases. Again, I’m hunting for sources so any source material on 2nd Generation beneficiaries would be welcome.Tony Benvin
Permalink Submitted by Alan - IRA critic on Wed, 2014-04-23 22:17
Tony, the following is on p 37 of Pub 590: Death of a beneficiary.In general, the beneficiaries of a deceased beneficiary must continue to take the required minimum distributions after the deceased beneficiary’s death, based on the distribution schedule established by that beneficiary under the rules in the following para-graphs. The beneficiaries of a deceased beneficiary do not calculate required minimum distributions using their own life expectancies.
Permalink Submitted by Anthony Benvin on Thu, 2014-04-24 15:25
Alan, I did read that but my impression is that it addresses susbsequent RMDs after the death of the first genereation beneficiary. It does not seem to address whether an untaken RMD must be taken payable to the estate of the first generation beneficiary as income in respect of a decedent (as is done with the original IRA owner), or if the RMD is simply taken by the second generation beneficiary. The general consensus seems to be that the second generation beneficiary takes the RMD for the calendar year for him/herself, although I have yet to find any source material that addressis this question directly.
Permalink Submitted by Alan - IRA critic on Fri, 2014-04-25 00:10
The original owner’s year of death RMD is never paid to their estate unless the estate is the beneficiary of the original owner. Incomplete RMDs are handled in exactly the same way for successor beneficiaries as they are for the original beneficiary, i.e original beneficiary would recieve the owner’s RMD and the successor beneficiary would receive the original beneficiary’s incomplete RMD for the year of death. The 1099R instructions state that the 1099R is always issued to the recipient of the distribution (SSN or EIN) according to the IRA beneficiary clause. Of course, if the first beneficiary had not named a successor beneficiary, the IRA agreement will specify who inherits the IRA account, perhaps the estate of the first beneficiary. If that occurs the 1099R will be issued to the estate EIN and the RMD will be taxable to the estate. It is possible that the default beneficiary of the owner might be the owner’s surviving spouse or even the owner’s children, but the default beneficiary of the original beneficiary is more likely to be the estate of the original beneficiary. The IRA agreement must always be checked to determine who inherits the IRA.