Estate as Beneficiary
I had a client in Louisiana who had an asset held at another firm. It was an non liquid private equity investment. He named his estate as the beneficary without consulting me. He died in June of 2012 at the age of 71. Due to accredited investor and suitiblitly needs of the private equity investment it was February of 2013 before the asset was ready to move to the estate owned IRA. In the meantime his wife, who was the sole beneficary of his estate, died at the age of 72 in January of 2013 which put the IRA into her estate as the owner. Her estate never took RMD from the asset. He did take an RMD before he died. At the time the advice from my back office that the asset qualified for the 5 year rule as it pertains to IRA’s where the estate is the beneficary and therefore no RMD’s have been taken. The private equity should cash out by 2017 and give the estate the liquidity it needs.
Since that time I have switched firms and my new back office says the IRA should have taken a 2014 RMD based off the wife’s single life expectancy. It seems to me that this is a unique situation. Which is the correct answer?
Permalink Submitted by Alan - IRA critic on Thu, 2015-02-12 20:24
I don’t agree with either back office. Client apparently passed AFTER his RBD and therefore the 5 year rule cannot apply. There was no designated beneficiary and RMDs are therefore based on client’s remaining life expectancy based on his age at the end of 2012. RMD for 2012 could have been his 2011 RMD deferred to the RBD, and if so his 2012 RMD is still not completed. I assume his estate is closed and therefore her estate needs to distribute all these RMDs through 2014 and request a penalty waiver on Form 5329. This RMD method would continue should the IRA be assigned to the beneficiaries of her estate.