Inherited Ira
Mom passed 9/2016 – Didn’t take RMD this year.
$2000.00 is the RMD amount.
IRA acount Balance = $38,000
4 beneficiaries
As Executor, can I submit the RMD to her estate account and pay outstanding debts? My sister said this was illegal, to use this money for this purpose.
She wants us to divide the account and only pay our designated portion $500 each.
As Executor, I want to take the $2000 pay off debts and then divide the remaining portion among the beneficiaries in separate Inh IRA’s –
Permalink Submitted by Shannon Horton on Fri, 2016-12-09 20:58
Forgot to mention mom had been taking RMD’s
Permalink Submitted by Alan - IRA critic on Sat, 2016-12-10 01:32
Once Mom passed, the year of death RMD becomes the responsibility of the account beneficiaries. Unless the estate was listed as beneficiary, the IRA is not an asset of the estate and not part of any probate proceeding. The IRA custodian must distribute the remainder of the year of death RMD to the 4 beneficiaries in any combination they agree on and that takes beneficiary coordination and cooperation. Your sister is therefore correct. The year of death RMD should be completed by year end, but if it is not and you take it out early in 2017 and file a 5329 explaining the delay (late year death of owner), the IRS will almost surely waive the penalty. The year of death RMD does not have to be taken before establishing separate inherited IRA accounts. Note that some IRA custodians try to force beneficiaries to all provide their SSNs, address etc before setting up the separate accounts for those who submit this info first. That would be their internal procedure and is NOT an IRS rule. As for the estate debts, once the RMDs and other distributions are taken (taxed to beneficiaries in the year received), perhaps the beneficiaries can arrange to pay the debts for the estate and settle up between them.
Permalink Submitted by William Tuttle on Sat, 2016-12-10 15:45
Unfortunately, I have been Executor/Administrator, beneficiary and/or aquainted with far too many estates. Retirement accounts, life insurance, TOD/ITF accounts, etc… that do not name the estate as beneficiary are not an estate asset and not subject to probate. In fact, your only responsibility is to notify the benefificaries and provide information allowing them to claim the assets. The estate/probate and thus you are not involved in the distribution of those assets. I would add the following:
So my advice is to not sweat such a small amount of debt. Let the beneficaires claim their rightful assets. Let the creditors know there are insufficent funds to pay the debt. I had such a case, where the estate had thousands of dollars in unpaid medical bills and credit card balalnces. When notified that there were no funds to pay, they all wrote it off and not even a single one filed a claim with the probate court.
Permalink Submitted by Alan - IRA critic on Sat, 2016-12-10 18:04
Yes, no liability for the beneficiaries but in some cases the beneficiaries will want to voluntarily pay some of the debts. A neighbor I know moved his mother’s investment account into joint tenancy with him and some other accounts into joint tenancy between his mother and sister. The reason was to avoid probate because the executor was a procrastinator. The plan worked very well, but there was no money in the estate to pay the final debts. SInce the intent of the joint tenancies was to close affairs promptly and efficiently and not to avoid paying some final bills including those of his mother’s MD for decades, the neighbor paid the MD’s bills from the assets he inherited in joint tenancy. He also knew his mother would have wanted these bills paid. So you could do that if you felt that way, but you do not have a legal obligation as spiritrider explained.