IRA owner dies, no beneficiary or will. 1+ years later estate to be settled. Does 5 year rule apply?

Submitted by Robert Huntley on Fri, 2019-09-27 11:11

FACTS:
68 yr old account owner dies August 2018, $200,000 IRA at Fidelity, no will, no beneficiary. Balance of estate roughly $300,000.
Court appointed Administrator finalized 9/2019 so work to settle estate can begin in 10/2019.
3 non-spouse heirs identified – 50%, 25% and 25% – The 50% heir is currently in early stages of personal bankruptcy. All parties live/died in Texas.

QUESTION 1: It appears the 5 year rule will apply to all three beneficiaries since the decedent wasn’t yet taking RMD’s. Is this correct?
QUESTION 2: If the 5 year rule does apply, when does that clock start ticking?
QUESTION 3: Is the 50% beneficiary protected from creditors on the inherited IRA she’ll receive? I don’t think she is on Bene IRA.
QUESTION 4: The custodian is Fidelity. Once Custodian is provided letters testamentary & death claims will they most likely split the IRA into inherited bene shares and then each beneficiary will handle their accounts from that point?

Thank you!



Submitted by Alan - IRA critic on Fri, 2019-09-27 14:49

  1. Yes, 5 year rule applies to total balance.
  2. The 5 year period effectively begins 1/1/2019, therefore accounts including inherited IRAs assigned by the court administrator must be fully distributed by 12/31/2023.
  3.  All inherited IRAs in TX are protected from creditors per TX Prop. Code Sec 42.0021(a) – same creditor protection the decedent had.
  4. They will only after the administrator takes action to assign the IRA out of the estate to the estate beneficiaries. Until then, any distributions will have to be made to the estate for disbursement. The 1099R will be issued to the recipient party. 

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