If you are a non-spousal beneficiary of an IRA from your parent who passed away in December 2016, along with your 3 siblings, each are designated as 25% beneficiaries. One of the beneficiaries/siblings passed away in June 2017 before an Inherited IRA was established by any of the beneficiaries how do you handle the deceased siblings 25%?
If the deceased beneficiary had no will and did not have an estate established what would need to be done?
If the deceased beneficiary’s share were to go to that beneficiary’s estate and there was no will, that share would go according to intestate provisions of the state of beneficiary’s residence. A personal representative would need to be appointed to administer this according to local probate procedures, and an estate would need to be established.
So once a personal representative is appointed and an estate is established would the estate have to take a lump sum distribution from the IRA? Can the other 3 beneficiaries establish their inherited IRA accounts and establish how they would like to take their distributions before the deceased beneficiaries account is established?
Yes, the other 3 beneficiaries can establish their inherited IRA accounts before the personal rep for the deceased beneficiary acts. Occasionally, an IRA custodian will try to delay transfers to inherited IRAs until all beneficiaries submit paperwork, but the remaining siblings should contest any such effort. For those who estabish separate inherited IRA account by the end of this year, their 2017 RMD will be calculated using each beneficiary’s age as of 12/31/2017. The 2017 beneficiary RMD for the deceased beneficiary can be paid to the estate and then passed through to the beneficiarys per the state intestate provisions, or if the personal rep is able to assign the remainder of the IRA to a inherited IRAs for the intestate beneficiaries, they can take their 2017 beneficiary RMD based on deceased beneficiary’s age by year end. Beware of any custodian suggestions that the remainder of the IRA must be distributed to the estate in a lump because that is not correct unless the IRA agreement specifically states this, and almost no agrements state that. Most custodians try to push lump sum distributions on executors and personal reps because they wish to avoid any complications generated by disputed estates.
Permalink Submitted by Alan - IRA critic on Fri, 2017-08-04 20:12
The IRA agreement beneficiary clauses must be checked. In most cases, the deceased beneficiary share would go to the estate of that beneficiary and be distributed according to the will. The other 3 beneficiaries need to get documentation submitted to establish their separate inherited IRA accounts before year end. If that deadline is missed, then their required beneficiary RMDs for 2017 will always be based on the oldest of the 4 beneficiaries. Also, if the parent did not complete the 2016 RMD before passing, the beneficiaries are jointly responsible for completing that RMD and would also need to file a 5329 to request the waiver of the 2016 penalty. Due to late year date of death, the IRS will certainly grant the waiver if the 5329 is properly filed.