IRA Made Payable to Estate

Submitted by Edward Fulbright on Mon, 2014-08-25 21:01

Mother’s IRA was made payable to her estate. Bank that has the IRA wants to make it payable to the estate for fifteen years as an inherited IRA. Is there a tax ruling that will allow it to paid to directly to the 3 children who are the ultimate beneficiaries of the estate? I believe we are very close to the one year mark, since she passed



Submitted by mk foss on Mon, 2014-08-25 23:18

When an IRA is payable to an estate the distribution rules depend on whether she had reached her Required Beginning Date (age 70-1/2+) or not.

  1. If she had not reached her Required Beginning Date, then the IRA must be fully distirbuted by the end of the year containing the five-year anniversary of the death.
  2. If she had passed her Required Beginning Date, the distribution period is measured by her age. There’s no provision for a 15 year payout as an option – but payments can be made over a shorter period than what the table indicates for her life expectancy.
  3. The custodian couldn’t expect that the estate would remain open for 15 years in order to accept RMDs and distribute them to the 3 children. Many PLRs allow the custodian to assign the benefits payable to an estate to the beneficiaries. Assigning the benefits will not increase the payout period. It only allows the beneficiaries to take their own distributions and for the executor to be discharged.

 



Submitted by Alan - IRA critic on Mon, 2014-08-25 23:23

In order for the 3 beneficiaries to use their own life expectancies for RMD, separate inherited IRA accounts must be established by 12/31 of the year following the year of death. Otherwise, the oldest beneficiary’s age will determine the RMDs for all. It is ridiculous to have to keep an estate open for 15 years,  as the following article and it’s links indicates: http://www.ataxplan.com/bulletinBoard/ira_providers.cfm. This certainly sounds like the typical situation where the bank sold your mother an IRA annuity, which terms likely relate to the 15 year time frame. You could end up with the trade off of surrender charges vrs the cost of filing a 1041 for 15 years for each beneficiary. The surrender charges are probably the way to go if it comes to that and if they apply after the annuitants death.



Submitted by mk foss on Tue, 2014-08-26 22:43

The rule Alan mentions for using the life expectancies of each beneficiary applies when the children are named as beneficiaries. With a trust beneficiary you use the life expectancy of the oldest trust beneficiary. The worst result occurs when the estate is named, or becomes the beneficiary because there is no beneficiary or a predeceased beneficiary was named. 



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