Are IRAs frozen when account owner dies?
Custodian is telling the beneficiaries that the IRA is frozen upon the date of death of the owner (assuming the custodian knows the date of death). There can be no liquidation of the investments inside the IRA until the IRA has been transferred to the beneficiaries, at least according to the custodian. Is this an IRS thing? Or could it be a custodian issue? If benies want to liquidate the investments inside the IRA or even take the RMD, what recourse do they have?
Permalink Submitted by Jose Morales on Wed, 2015-03-25 17:30
This isn’t an IRS issue, and without clarification for what “frozen” means it’s hard to comment really. That being said, it seems logical that the custodian holding an investment would not be able to liquidate an investment without proper authorization. Proper authorization would be from the account owner (now deceased) or the beneficiary (at such time that they take assumption of the funds either by establishing an inherited IRA or taking a lump sum distribution). What are the beneficiaries trying to accomplish? They can’t liquidate the investment and take the RMD in such a way as to avoid the tax consequences themselves if that is what the issue is.
Permalink Submitted by Steven Visek on Wed, 2015-03-25 20:36
I went through this with TD Ameritrade. I actually didn’t inform them of my father’s death until months later and we were ready with all the paperwork to get the inherited IRA DB trusts set up. Once they were notified, they said it was a regulatory requirement(SEC I think) tha the IRA be frozen and not accessible by me(I am both Executor and trustee of all the inherited IRA DB trusts) until everything was processed and the new accounts set up.
Permalink Submitted by Alan - IRA critic on Wed, 2015-03-25 21:00
Once the death is reported, beneficiaries cannot change investments, name successor beneficiarys or request any distributions until the custodian is satisfied with not only the death certificate but also the paperwork needed to establish the beneficiary interest (beneficiary DOD, SSN etc). That is tantamount to a frozen account, whether they use that terminology or not.
Permalink Submitted by Jimmy Rench on Tue, 2015-03-31 20:37
You may think by not reporting the death that you can keep the account from being frozen. Perhaps, but remember if that the client is having direct deposit of their Social Security benefit to any investment account, the custodian will be notified by the Social Security Administration. The custodian will more than likely freeze the IRA account as a result.