RMD for Successor Beneficiaries

Submitted by Jeffery Hurst on Tue, 2015-11-24 22:04

IRA owner died at age 83. Wife was the beneficiary of the IRA age 83 at time of inheritance. She dies 4 months later and the 3 children inherited the IRA from her. She took the IRA as her own, not a beneficiary IRA. What table are the children required to use when calculating their RMD? Can they use their own ages or are they required to use mom’s?



Submitted by Alan - IRA critic on Tue, 2015-11-24 23:18

If the wife had the IRA re titled as owner and named the 3 children as beneficiaries, the 3 can use their own ages to determine their RMD as long as they create separate accounts by the end of the year following the year of wife’s death. Those who do not have separate accounts must use the age of the oldest beneficiary without a separate account.



Submitted by Kevin Grenham on Sat, 2015-11-28 13:02

Assuming the wife died before setting up the IRA – Would the wife’se estate own the new IRA as an inherited IRA from husband since she can no longer elect spousal? At that point the executor would then set up three inherited IRA’s and 3 beneficiaries would distribute over the wife’s remaining life (after taking RMD for current year)?



Submitted by Alan - IRA critic on Sat, 2015-11-28 17:22

  • Yes, that is generally the best procedure, as the executor would assign the inherited estate IRA to the estate beneficiaries, but the wife’s remaining life expectancy RMD schedule would apply to these inherited IRAs for each estate beneficiary. However, this could become more complex than that.
  • In a situation where a beneficiary RMD is not completed, the default ownership rules should always be investigated if the surviving spouse is the sole beneficiary. The default rule states that if a sole spousal beneficiary fails to take an RMD required “as beneficiary”, a deemed election to assume ownership applies. Since beneficiary RMD deadlines are always 12/31, if the spouse passed prior to the end of the year her husband passed, she did not fail to take a beneficiary RMD. But if the 4 months between deaths included January 1st with the year of death RMD still incomplete as of 1/1, then a deemed election might apply. The issue here is that the year of death RMD is the RMD of the husband (owner), not the beneficiary, yet it is required to be taken by the beneficiary, so I believe the deemed election would apply. But not if the 4 months was fully contained in the same calendar year since there was no RMD deadline in that period.
  • Now if we DO have a deemed election and the wife is treated as the IRA owner who failed to name her own beneficiaries, then we look to the IRA agreement to determine the default beneficiary when none were named. There is a slight possibility it would be her children who would then become designated beneficiaries using their own life expectancies. But if the estate were the expected default beneficiary because wife did not name her own beneficiaries, we are back to square one using the remaining life expectancy of the wife.

 



Submitted by Kevin Grenham on Sat, 2015-11-28 19:51

Assuming the husband dies in November and had already taken his MRD. Wife dies in April of the next year before taking the IRA as her own. She is the sole beneficiary so the estate becomes the owner of the inherited IRA. Assuming the Estate takes the MRD before 12/31 using uniform table as required by the wife before setting up the inherited IRA’s for the three children?  Then distributions continue the next year using life expectancy this year minus 1 year for next year’s first distribution.  Thank you for the input here!



Submitted by Alan - IRA critic on Sat, 2015-11-28 20:50

  • Since husband took his year of death RMD AND the wife passed prior to the end of the next year, there is no way that a deemed election could occur since there was no RMD delinquency when the wife passed in April. Wife’s estate would become the beneficiary of the IRA, not the actual IRA owner. And the wife’s remaining life expectancy would apply to the estate or the estate beneficiaries if the executor assigned the IRA to them.
  • If the wife passed as the IRA beneficiary in the year she would otherwise reach 84, then her Table I divisor would be 8.1 for her first beneficiary RMD year and her estate (or estate beneficiaries) would use that. Each following year gets a reduction of 1.0 from the first divisor so the account would be drained in a little over 8 years.


Submitted by Kevin Grenham on Sun, 2015-11-29 19:26

Thank you!



Submitted by Kevin Grenham on Mon, 2015-12-28 20:57

Moving to distribute the Inh IRA in the Estate of second spouse to three children – sole beneficiaries of Estate. Finding out that Schwab doesn’t like distributing to separate Inh IRA’s from Estate. In this case three beneficiaries of the current Estate Account holding the Inh IRA we have been discussing. Schwab will do it by exception only and is looking for reference to a PLR in the letter of direction. Do they really need a PLR to move assets to three Inh IRA’s. Looks like I should have gone to Vanguard!



Submitted by Bruce Steiner on Tue, 2015-12-29 00:20

  • In greenham’s last case, if the wife was the beneficiary but died before rolling it over, if the children were the contingent beneficiaries, the wife’s executors could disclaim the IRA so it would go to the children who could then stretch it over their life expectancies.  Depending on state law, the wife’s executors might need court approval to disclaim on her behalf.  Of course, the wife’s executors would probably not disclaim the IRA unless the beneficiaries of the wife’s estate were the same as the contingent beneficiaries of the IRA.

 

  • If the above won’t work, and the executors of the wife’s estate want to distribute the inherited IRA to the children, if Schwab won’t do it, the executors could move the inherited IRA to a different custodian. 

 

  • Would Schwab do it if the attorney for the wife’s estate gave them a citation to another PLR, or a legal opinion, rather than requiring the wife’s estate to get its own PLR.  We’ve obtained PLRs involving IRAs, but between the legal fees and the IRS’ user fee, they’re expensive, so the attorney for the wife’s estate should look to see if there’s a solution that doesn’t require obtaining a PLR.

 

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


Submitted by Alan - IRA critic on Tue, 2015-12-29 00:35

  • It is surprising to hear of resistance from Schwab. Perhaps the request should be made to a higher up in the retirement plans Dept. Here is a link to a tax opinion. The IRS has no problem with assignment of retirement plan asets to estate beneficiaries, and have not had issues for several years now.  I suggest contesting this decision with Schwab before considering a transfer to another custodian:  http://www.merrillanderson.com/downloads/proofs/July08study_proof.pdf
  • Here is a link to an article by Natalie Choate on this subject. Within the article there is another link to a sample letter for the executor to send to the IRA custodian:  https://www.ataxplan.com/wp-content/uploads/2015/04/FiducLetterWebVersion.pdf
  • Here is another article on the subject which includes reference to a 2012 letter ruling approving such transfers.
  • I know that Schwab is aware of all this. The real reason for a repeated refusal to accept assignment may not be legal questions as much as not wanting to assume the administration issues for a small IRA balance.


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