IRA Distribution to Individual Heir & Multiple Charities

Submitted by Mary M on Wed, 2020-01-29 02:20

Hello-
My aunt recently passed away in 2020 and left a number of IRA accounts with a beneficiary as her “estate”. The heirs in the will are a mix of charities and one heir, myself, with % distributions. The executor, who is also her attorney and CPA is concerned about the tax consequences, and has requested that I obtain a letter from a professional tax or estate attorney stating exactly how the IRA assets need to be liquidated and titled to myself. From everything I have read to date, this seems to be fairly straightforward so I am confused as to why he is requesting this. Is there some magic that needs to happen to ensure that the current institutional holder of the IRA accounts titles the distribution of the assets properly as they pass to the estate? I would have thought that this is something he as her advisor and executor would know how to do. Any advice on how to proceed and / or questions I should ask would be helpful. Two of the accounts are titled IRA FBO, and one account is a 503b account.
Thank you so much in advance.



Submitted by Alan - IRA critic on Wed, 2020-01-29 03:52

  • I assume the 503b is a 403b. For that account, the plan will only issue a lump sum distribution to the estate.
  • The inherited IRA is just another asset of the estate, and the executor needs to follow the instructions in the will, if any. If the will is silent the executor can either have the IRA distributed into the estate or assign the IRA to the beneficiaries of the estate. While the charities do not care since they will not owe taxes, that leaves you as the only one to benefit from receiving your share of the IRA to prevent you from having to pay taxes in a single year. I will guess that aunt passed after RBDs had begun, therefore you could stretch an inherited IRA only for her remaining single life expectancy, but that’s still better than a lump sum distribution through the estate.
  • While you are only beneficiary for which it matters, if the executor assigns the IRA to all the beneficiaries including the charities, he will not have to report income to the estate (at least from the IRA) and deal with a charitable deduction for the estate. It will make his 1041 much easier, possibly even eliminate it.
  • All large IRA custodians will accept such a request from the executor, but there are still a few minor ones that resist. If he runs into this, the inherited IRA could be first transferred to a new IRA custodian, preferably a major firm. Otherwise, if the IRA custodian refuses assignment and a distribution from the IRA is made to the estate, you will lose your limited stretch since the executor will pass your share of the IRA distribution through the estate to you on a K 1 form, all taxable in the year distributed.  Again, the charities are not likely to care as they are getting their inheritance tax free, so actually prefer a lump sum.
  • The executor should be able to confirm this info with any professional fiduciary if needed. Again, if the will is specific on any of this, which I doubt, the executor must adhere to the will provisions.

Submitted by Bob on Thu, 2020-01-30 23:15

Could the Executor transfer the right to receive the 403b held by the Estate to the charitable beneficiaries to avoid it dropping into estate?

Submitted by Alan - IRA critic on Fri, 2020-01-31 00:31

That could be done except that the 403b plan may refuse to accept the assignment.

Submitted by Mary M on Sat, 2020-02-01 17:41

Thank you so much for the answers.  The executor said he will be sending the IRA forms for me to look at but is insisting on a letter from a professional stating how the distribution of funds to me as the sole heir should flow.  I am assuming he’s doing this so as not to appear in conflict as an “advisor” to me personnally while maintaining his fiduciary responsibility to the estate.  I guess this would be a letter from a CPA? that has more specialty in tax planning for estates.  The above comments on the 403b was also in line with my thinking.   I don’t know if inheriting the 403b is subject to both inheritence tax and some type of RMD schedule.   The 403b plan is currently maintained by a large institution so I am hopeful they would agree to the split.

Submitted by Alan - IRA critic on Sat, 2020-02-01 19:48

Submitted by Mary M on Fri, 2020-02-07 00:15

Some comments on aunts death –  she passed early Jan 2020 and was 79. She had taken her 2019 RMD in late dec on all of the accounts. I am concerned that the executor, also her past attorney/cpa didn’t insist on her setting up the beneficiaries properly but at some point the custodians/financial institution said some beneficiary was better than none I supose.  I will look over the link to the letter you provided.  I hope he’s willing to take the necessary steps otherwise I don’t know what recourse I’ll have through probate. 

Submitted by Alan - IRA critic on Fri, 2020-02-07 03:00

Do you happen to know the value of all estate assets?  In other words, are there enough other assets in the estate to pay final bills and taxes of the estate, or will the plan assets be needed to do that?  Executors have problems settling estates if there will not be enough assets that can be converted to cash in the estate to pay all expenses, not incidentally including executor fees.  Therefore, leaving the plans to the estate may have been intentional, not an oversight. And if that’s the case, a request for assignment may not come or if it does, not until the estate is ready to close. 

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