IRA with Mutiple Beneficiaries
My client, (Michael) passed away at age 62. He had 21 beneficiaries designated on his Traditional IRA, all nieces and nephews because Michael was not married. All 21 beneficiaries opened Traditional Inherited IRA’s within 90 days of Michael’s death. Am I correct in figuring RMD separate according to each beneficiaries age? Or, am I required to use the oldest beneficiaries age in the calculation?
Permalink Submitted by Alan - IRA critic on Tue, 2017-01-10 17:55
Pretty amazing that all 21 have provided info to establish these inherited IRAs. Almost always there is an inefficient beneficiary who is slow to act. To answer your question, they can each use their own single life expectancies for beneficiary RMDs starting in the year following client’s death assuming the inherited IRAs were funded.
Permalink Submitted by Mary Ann Ernette on Mon, 2017-01-30 17:46
Thank you. We had two very insistent Executives of the Will.
Permalink Submitted by William Tuttle on Mon, 2017-01-30 18:19
It is not clear to me that you are referring to the beneficiary’s RMD in the year following death or the decedent’s year of death RMD. The exexcutor would have no responsibity to determine beneficiary’s respective RMD’s as they are not estate assets. If this is simply helping the beneficiaries in setting up their accounts and making the best use of their lifetime “stretch” potential, go for it. However, if you are referring to any amount of the year of death RMD (if required) untaken by the decedent. The divisor would be based on the decendent’s age. This RMD would be satisfied by any one or more of the beneficiaries taking enough, such that the other beneficiaries would not be required to take anything. I think this would be highly likely with 21of them.
Permalink Submitted by Tom Reiter on Tue, 2017-02-21 00:27
How complicated would if be if several of the 21 nephews and or nieces were minors with different parents as custodians? An earlier response noted that minor beneficiaries cannot request RMDs.
Permalink Submitted by Alan - IRA critic on Tue, 2017-02-21 01:50
In total there will be a huge amount of work involved, but it will be spread out over perhaps 8 or 9 parent custodians who must determine who the financial guardian will be for each beneficiary. I am assuming that all 21 were named individually with no trust beneficiaries named. At the age of majority the UTMA account that receives each beneficiary distribution with the RMD as a minimum will terminate and the beneficiary will then have access to the entire inherited IRA balance. Probably well before that the IRA custodian will figure out why many IRA custodians would have established a limit to the number of beneficiaries acceptable to them. Here is an article on the subject:http://shermlaw.com/designation-of-a-minor-as-an-ira-beneficiary/
Permalink Submitted by Tom Reiter on Wed, 2017-02-22 20:39
I read the above link concerning minor IRA beneficiaries and a probable huge amount of work involved. I also have named 11 grandchildren as IRA beneficiaries; only two of them will be possible minors. I was wondering if I could solve this complication by renaming the Dad and Mom instead of the two minors as part of the 11 beneficiaries; thereby avoiding the custodian problem. I would privately stipulate to the parents that their IRA share should be immediately cashed in with the monies deposited into both minor grandchildren’s bank accounts or college funds. I’m sure that my son and his wife would appove of that arrangement and that would avoid any custodial accounts or trusts. Would this be an option for my family?
Permalink Submitted by Alan - IRA critic on Wed, 2017-02-22 21:04
Yes. In any given situation the beneficiary setup can be a trade off involving several factors. The amount of the account is always a factor and the character and maturity of both the children and grandchildren is a major factor. An immature grandchild can cash out an inherited IRA through an UTMA at the age of majority. Even though the RMDs are small for a minor, larger RMDs can expose the parents to the kiddie tax on any taxable income to the minor. Another option to consider is whether to partition your IRA account according to beneficiary. For example, if you know that a particular beneficiary is dysfunctional, you might set up a separate IRA account for that beneficiary so they have a separate inherited IRA to begin with. Or consider a child’s trust for a problematic beneficiary.