Inherited IRA to Estate Beneficiary

Submitted by Jonathan Sard on Thu, 2021-06-03 15:21

A client passed away in December 2020 at 66 years old and named his estate as beneficiary. He wanted all proceeds to go to various charities through his will. Can the executor transfer the IRA to a regular estate account at the bank and then disburse funds to the charities, or should the disbursements to the charities come directly from the Inherited IRA?? I didn’t know if it mattered from a tax standpoint since the charities will be the ultimate recipient.

Thank you!



Submitted by Alan - IRA critic on Thu, 2021-06-03 16:02

Generally, a total distribution would be made to the estate account, and the executor pays the charities and claims the unlimited charitable deduction on Form 1041. This also allows the IRA funds to be used to pay any final expenses and taxes of the decedent and other estate expenses before paying the charities the remaining amount. The IRA custodian is also likely to resist assignment of the IRA to individual inherited IRAs for each charity if there are several charities involved.  But there might be a unique situation where the estate has no income or expenses to pay and assignment might eliminate the need to file a 1041. I don’t think the actual taxes would differ much either way.

Submitted by Jonathan Sard on Thu, 2021-06-03 17:12

Thanks Alan. Actually, the game plan would be to create the Inherited IRA in the name of the estate and then the executrix will instruct the custodian to which charities to disburse the funds directly to. Does that make sense?

Submitted by Alan - IRA critic on Thu, 2021-06-03 23:20

Either way, as soon as the death Cert and estate EIN and related data is submitted to the custodian, they will transfer the balance into an inherited IRA   for the estate. The executor can then either request a distribution to the estate reportable on the estate 1041, or assign the the portion of the IRA representing what each charity will receive to an inherited IRA for the charity which the charity can cash out tax free. The portion assigned will not be distributed to the estate and cannot be used for settling estate expenses and taxes. This approach may present various administrative challenges if the estate needs funding.

Submitted by Bruce Steiner on Sun, 2021-06-06 02:51

Whether the estate will be able to take a charitable deduction will depend on the terms of the Will.
Why didn’t the IRA owner name the charities as the beneficiaries of the IRA?

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