deceased ira with the estate named as a beneficiary

Submitted by Gary Cohen on Mon, 2015-09-21 20:14

A long story but I will cut to the chaff.

James X Sr. named his estate as the sole beneficiary rather than his son and daughter. He died June 30th 2014. We have already passed the critical 9 month post death date so we are facing this September 30th, 2015 required distribution date. The bank issued a check made out to the estate for the $100,000. Joe and Jane, the deceased children have in their possession a $100,000 check drawn to the Estate but have not as yet deposited the check to the Estate checking account.

I came on the scene 30 days ago. I have attempted to have the bank take back/void the check and have it reissued to “IRA Rollover for the benefit of the Estate of James X”

The bank refuses stating that the check must be made out to the Estate.

My thinking is if the children were the beneficiaries they would each get a check for 1/2 the proceeds and get income taxed for $50,000 each . But they could also have elected/ instructed the bank holding the IRA of the deceased to set up either a stretch or IRA rollover account (I am not sure the IRA can be stretched after 9 months after death.) and not be taxed for their full amount in year 1.

So if a natural, person is named as a beneficiary they could take the money and run or roll it over into an IRA. So can’t an Estate, a non person named as beneficiary also receive the funds by virtue of a rollover into an Estate IRA rather than accepting the funds directly into the estate account and suffering a $50,000 fiduciary tax for 2015?.

Anyone out there have any definitive citations or places where I can justify my position? If I am correct but the bank doesn’t move by 9/30 the case is moot.

Perhaps if they suffer the $50,000 “tax damage” they can go after the ignorant lawyer who advised them to change themselves as the beneficiaries to the Estate.

Thanks for any input.

Gary Cohen



Submitted by Bruce Steiner on Mon, 2015-09-21 20:43

  • If the children were the beneficiaries, they could have stretched the distributions over their life expectancies.

 

  • The estate gets some stretch, but not as much.  If the IRA owner had reached his required beginning date (generally the April 1 after the year in which he reached age 70 1/2), the estate can stretch it over the IRA owner’s life expectancy as of his death (as if he hadn’t died).  If the IRA owner had not reached his required beginning date, the estate has to take the entire IRA by the end of the 5th calendar year following the date of death (December 31, 2019).  By using a fiscal year the estate can spread it over six or seven taxable years.  The estate can deduct adminstration expenses against this income.  The estate can distribute the inherited IRA to the children in kind, but that won’t increase the stretch.  That damage happened as soon as the IRA owner died without a designated beneficiary.

 

  • A beneficiary can’t do a 60-day rollover.  Only the IRA owner or spouse can do this. 

 

  • The lawyer handling the estate should deal with this.  Where has he/she been for the last 14 months?  If he/she can’t or won’t deal with it, the executor should retain competent counsel who can deal with it.

 

  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

 

Submitted by Alan - IRA critic on Mon, 2015-09-21 21:57

  • In most cases, the best solution is to have the executor assign the IRA out of the estate to the beneficiaries of the estate. Here is a link that explains the process:    https://www.ataxplan.com/bulletin-board/notice-to-executors-and-trustees/
  • Who authorized the bank to issue the check?  Banks are always in a rush to issue a check to the estate so they do not have to bother with inherited IRA accounts for the beneficiaries. There is no 9/30 required distribution date unless the bank’s IRA agreement contains such a requirement, and I have not heard of that happening. After reading the link, you may want to press the bank to accept the check back, but it will not be easy. They do not want it back.
  • If the decedent passed prior to his required beginning date, the 5 year rule applies for RMDs. If he passed after the RBD, then the inherited IRA can still be stretched over the life expectancy of the decedent, but not the beneficiaries. The decedent’s life expectancy will probably still be more than 5 years, but maybe not much more. Table I would apply using decedent’s age in the year of death and that factor would be reduced by 1.0 for each RMD year thereafter. The decedent’s year of death RMD must be distributed as well if decedent did not complete the RMD.

Submitted by Bruce Steiner on Tue, 2015-09-22 02:39

If the 5-year rule applies, you may be better off leaving it in the estate.  The estate can use a fiscal year and get six or seven taxable years.  The estate can also time the distributions so as to use administration expenses against them.  Now that the estate tax exempt amount is $5,430,000 (indexed), most estates will claim the administration expenses as income tax deductions rather than as estate tax deductions.  Often the estate doesn’t have enough income to use the administration expense deductions.  While being able to use them against the IRA distributions is small consolation for losing the stretch over the children’s life expectancies, it may provide some benefit.

Submitted by Gary Cohen on Tue, 2015-09-22 15:00

Your comment is interesting.  If we leave the funds in the IRA with the Estate as beneficiary but the Custodian bank has issued a check (a distribution?) made out to the Estate and we deposit that check into the existing Estate checking account  will it NOT be fully taxable.  In other words the Custodian bank will not have to issue a 1099(R) to the estate resulting in a fiduciary tax in NY of well over 40%? At this point the executor is still holding the check…it is still not deposited. Can the executor, as a last resort, instruct the custodian to void the April 2015 check and reissue to an IRA(they presently refuse to do this) or just take back the check?  This will at least give us until 12/31 until they have to issue to any payee, this being the year following the death.? This will give us 3 months to negotiate with and educate the bank. I hope I am clear about my knowlege and my response. Gary Most banks are really ignorant about the fine workings of IRA distributions and are afraid they will be violating IRS regulations. Thanks again. gary

Submitted by Jose Morales on Tue, 2015-09-22 15:49

if the check that has been issued is deposited into a checking account then the Custodian that issued the check will also issue a 1099-R for the full distribution amount to the estate.  The only way to retain some stretch is to convince the Custodian to void the check, and they most likely will not want to do that (especially if they were instructed to issue a check to the estate).

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