Estate beneficiary to fund trust
I am a CPA and my client’s father passed away (at the age of 88) with a will naming his estate as the beneficiary of his IRA. The estate will fund a trust for the continuing benefit of his two adult daughters. The custodian of the funds initially suggested holding the estate open for multiple years and using the methodology to calculate RMD as per IRS Pub 590 (under “Beneficiary not an individual: Death on or after required beginning date”) as a way to minimize the tax (which would be at the trust level). The attorneys for the estate engaged the custodians (and their own CPA) in a discussion and subsequently advised my client that they would have to liquidate the IRA upon closing the estate (which would occur in the next sixty days). I am looking for strategies for spreading out the IRA to minimize the tax impact or a way to convince the attorneys to hold the estate open. Do you have any suggestions?
Permalink Submitted by Bruce Steiner on Wed, 2014-07-30 01:37
It’s not a good sign when the lawyers ask a couple of nonlawyers a legal question. Regardless of whether the executors keep the estate open or distribute the IRA in kind, the stretch is limited to the IRA owner’s life expectancy at his death (as if he hadn’t died). For their own protection, the lawyers should retain co-counsel. Bruce Steiner, attorney, NYC, also admitted in NJ and FL.
Permalink Submitted by Alan - IRA critic on Wed, 2014-07-30 02:20
Client should seek out an IRA custodian who will establish an inherited IRA for the entity named as beneficiary of the IRA presently (estate or trust). If the estate is named, the executor can have the IRA transferred to the trust and then the decedent’s remaining life expectancy RMDs from Table I can be distributed annually to the trust. Client might check with Fidelity Inv on this. Current custodian does not have to offer the transfer, but it appears they want to liquidate the inherited IRA and a transfer would do that for them just as well as a distribution.