Death of IRA owner no beneficiaries listed

Submitted by Howard Hook on Wed, 2021-04-28 13:48

Taxpayer, widowed dies in early 2021 having failed to name IRA beneficiaries.
Custodian says that they will split the IRA into inherited IRAs for her two children with each child’s tax ID# so that kids will pay tax instead of estate. Custodian does tell kids they must withdraw entire IRA within five years.

Does that sound correct?
Is custodian relying on language in the IRA agreement allowing for this or is this IRS allowable or is custodian wrong? How does custodian know without looking at the Will that her kids should be the ones to inherit the IRA?

My assumption was it would be retitled under estate EIN and when distributions were made from IRA to estate that the estate would pass out to beneficiaries of estate who would pay tax on amount.
Thanks
Howard



Submitted by Alan - IRA critic on Wed, 2021-04-28 14:59

Custodian’s 5 year requirement reflects that the widow passed prior to her RBD, which means her RMDs had not yet begun. If you want to check this, please advise her DOB and DOD. The beneficiary clause in the IRA agreement should be reviewed to determine if her children are the default beneficiaries after any spouse. If the agreement states this, the estate is not the beneficiary. This could be the case, because if the agreement does not make the children designated beneficiaries (if no spouse), the executor would have to request assignment of the IRA to the estate beneficiaries. If the custodian is doing this on their own and their agreement does not so state, something is amiss. If the children were going to inherit anyway, no problem other than the estate may not have enough cash to pay final expenses. 

Submitted by Howard Hook on Wed, 2021-04-28 15:14

Thanks Alan.I believe what happened was husband died at end of 2020 naming wife  as primary beneficiary. She died 3 weeks later in January 2021 before rolling the IRA over into her own name. Since there were  no contingent beneficiaries listed on husband IRA the children assumed it would go to the estate.I believe both the husband and wife were already taking RMDs.Does the above facts change anything ?Sounds like it may be addressed in the IRA agreeement?Thx  

Submitted by Alan - IRA critic on Wed, 2021-04-28 16:31

Then wife had no IRA other than the inherited IRA from husband, and she did not name a beneficiary on the inherited IRA?  In that case, the IRA would go to wife’s estate. But if wife’s executor on behalf of wife filed a disclaimer, then IRA would go to husband’s estate. 
But neither of the above situations explains why the custodian is already dealing directly with the children. The custodian should ask to explain this, but the IRA agreement should be checked anyway, since the answer could lie there.
If both were taking RMDs, the remaining life expectancy of the wife (barring disclaimer) would apply with the estate as beneficiary. But if the children were default beneficiaries under the agreement, and the estate did not inherit, then the 10 year rule would apply.

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