Are inherited IRA assets required to be used to pay decedent’s taxes?
I have a client that inherited an IRA from her mother who had taken a $40,000 distribution while still alive with no taxes withheld. As a result the decedent had fed and state balances due on final return of $12,000. The IRA assets (approximately $200,000) went directly to the daughter as the names beneficiary. The attorney the daughter used stated that the inherited IRA did not have to be used to pay taxes and that a CPA could write a letter to the fed and state stating that there are insufficient assets of the estate after funeral expenses to pay the tax liability. Is this correct? Something doesn’t sound right. Why wouldn’t all terminally ill individuals take distributions with no withholding and leave remainder to children?
Permalink Submitted by Alan - IRA critic on Mon, 2017-06-05 20:58
Generally, the estate and not relatives of the decedent are responsible for paying decedent’s debts which pass to the estate. However, if the decedent took a distribution and gifted it to the client, ie the client did not inherit that money but received a lifetime transfer (gift), the situation could be different. What did mother do with the 40k distribution such that none of it was left at her death to settle debts?
Permalink Submitted by Jason Davis on Tue, 2017-06-06 13:45
Not sure what mother did with the $40k but there was only like $6k left in checking. She actually committed suicide.