IRA left with no named beneficiary

Submitted by Ryan Shenk on Wed, 2021-08-25 22:26

Hi,

I was hoping the wisdom of the crowd could assist with a question I have.

Situation:

Friend 1 passed away with an IRA account that had no named beneficiary. Friend 1 did have a will and it stated that all of Friend 1’s assets would go to Friend 2. The custodian of Friend 1’s IRA has told us that since there is no named beneficiary they will distribute the assets to the estate as beneficiary of the IRA.

Friend 2 is also the executor of Friend 1’s estate.

Friend 1 was past RBD for distributions so Friend 2 should be allowed to stretch the IRA over the decedent’s life expectancy.

Question:

Can the assets be transferred from one custodian to another (trustee to trustee) from the estate as beneficiary of the IRA into an inherited IRA at another custodian where Friend 2 is the beneficiary?

Or would the transfer have to go from estate as beneficiary of the IRA into an inherited IRA where the estate is beneficiary and THEN move the money from inherited IRA – estate beneficiary to inherited IRA – Friend 2 beneficiary?

I believe there was an IRS ruling in the past 5-10 years where this was now allowed, but just making sure I’m not missing anything.

Any help/guidance would be appreciated!

Thank you.



Submitted by Alan - IRA critic on Thu, 2021-08-26 01:08

It does not matter whether the estate IRA is transferred to a new custodian and then assigned by the executor to an inherited IRA for friend 1  OR if the executor assigns the inherited IRA to friend 2 with the current custodian and then transfers that inherited IRA to a new custodian. While the IRS has approved assignment out of the estate in numerous private letter rulings over the year, some IRA custodians resist cooperating with the transfer. Therefore, the executor should determine if the current custodian will cooperate first, and if not then transfer to the new custodian. In fact, if the current custodian will not cooperate, the transfer to the second custodian should not occur until the second custodian provides assurance they will cooperate with executor assignment out of the estate.     

Submitted by Ryan Shenk on Thu, 2021-08-26 01:41

Thank you Alan. How would you keep track of the moves and still show the IRS that the distributions can be made over the life expectancy of the decendent when you ultimately move the money from an inherited ira in the name of the estate to an inherited ira in the name of Friend 2? Would you lose the ability to stretch if the funds were moved into the inherited IRA for the benefit of Friend 2?

Submitted by Alan - IRA critic on Thu, 2021-08-26 15:20

I have never heard of the IRS requesting documentation to “trace” the source of an inherited IRA, the executor could provide a copy of the estate IRA statements and the letter to the custodian assigning the IRA out of decedent’s estate. If the IRS was interested the name of the decedent also shows on the 5498 issued by the new custodian, and they could request estate info for the decedent from the executor, who must retain such info for a specified lenght of time. Assignment of the IRA out of the estate does not change the distribution period that applied if the estate remained open, in this case the remaining LE of the decedent. Friend 2 is not allowed to use their own LE for beneficiary RMDs, as they are not treated as a designated beneficiary. However, assignment does allow the estate to close and provides independent control of the inherited IRA by the friend, eg transferring the inherited IRA, naming successor beneficiaries, etc/

Submitted by Ryan Shenk on Fri, 2021-08-27 01:25

thank you so much Alan. Very helpful.

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