IRA sole asset when Estate Taxes Due

Submitted by chris Ryan on Mon, 2020-07-13 14:03

IRA sole asset left in estate (example value $3M); Multiple beneficiaries named-children Estate previously utilized 100% of estate tax exemption 5 years earlier. question 1) How are estate taxes paid since the ira is outside of probate? Does the estate draw down the IRA, pay taxes on distribution and utilize net for estate tax? Question 2)What happens no one is administering the estate (no filing of 706) and beneficiares request and receive IRA assets from custodian



Submitted by chris Ryan on Mon, 2020-07-13 14:08

IRA sole asset left in estate  (example value $3M); Multiple beneficiaries named-children Estate previously utilized 100% of estate tax exemption 5 years earlier. question 1) How are estate taxes paid since the ira is outside of probate?  Does the estate draw down the IRA, pay taxes on distribution and utilize net for estate tax? Question 2)What happens no one is administering the estate (no filing of 706) and beneficiares request and receive IRA assets from custodian 

Submitted by Alan - IRA critic on Mon, 2020-07-13 14:46

This needs confirmation, but I expect that the estate tax will have to be calculated, and the beneficiaries will have to take taxable distributions from their inherited IRAs and turn the proceeds over to the estate administrator (one may have to be appointed) for payment of the estate tax. Beneficiaries will then receive their pro rated amount of the IRD deduction which can be applied on their own tax returns to offset much of their income taxes due as they take IRA distributions. If a beneficiary has cashed out their inherited IRA, they will still owe their share of the decedent’s estate tax. SInce the estate has no assets, I don’t know if the IRS will proceed against the estate or directly against the beneficiaries for payment.

Submitted by Bruce Steiner on Mon, 2020-07-13 22:34

  • The IRS will go after the beneficiaries if the executors don’t.  If there’s no executor, the beneficiaries are responsible for filing the return.
  • The beneficiaries may use other money to pay the estate tax.
  • An interesting question is whether the estate qualifies for a discretionary extension of time to pay the estate tax under Section 6161.  That section allows the IRS to grant an extension of time of up to 10 years (though they’ll only grant it for a year at a time).  It’s generally used to avoid a forced sale where an estate is illiquid.  The interest is at the usual rate for taxes (presently 3%), and is deductible.  I’m not aware of any cases where it’s been used in situations like this.
  • Bruce Steiner

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