Transferring IRA through multiple Estates to final Beneficiaries
Hi All!!!
I was hoping you could verify my understanding of the current IRA distribution rules.
I am the Executor of several Estates, and here is the situation:
“A” had a CD in an IRA account
The CD matures on 11/20/2021
“A” passed away 7/4/2020 at the age of 85
The beneficiary of the account pre-deceased “A”, so now “A’s” Estate is the beneficiary.
As Executor I will request a Inherited/Beneficiary IRA in the name of:
“A” Deceased, IRA FBO “A’s” Estate
Can I then request the bank to distribute the above IRA 50/50 to the two beneficiaries of her Estate as:
50% – Inherited/Beneficiary IRA FBO “J”
50% – Inherited/Beneficiary IRA FBO “D”
Should this final transfer to J & D be completed
– immediately
– at the CD’s maturity
– when the estate is closed
– before 12/31/2021
– other?
Do J & D have 10 years to take all distributions?
When does the 10 year timeline begin?
To make things more complicated, there is another IRA account involved from “L”.
“L” passed away 12/3/2020 (after “A”) at the age of 90
“A” was her beneficiary, so now “L’s” Estate is the beneficiary.
“L’s” Will bequeaths everything to “A”.
SO, can this IRA pass from “L’s” Estate, to “A’s” Estate, to IRA FBO J & D???
Are these crazy situations spelled out anywhere in IRS documents?
The financial institution is claiming that J & D cannot receive the funds as an Inherited IRA.
Thank you for your assistance with this!!!
Permalink Submitted by Alan - IRA critic on Tue, 2021-09-21 20:41
The financial institution knows better but they do not want to get involved in a complex situation, so may resist accepting your request to assign the inherited IRA out of the estate to the estate beneficiaries. It’s not clear if L’s passing led to this decision or not.
The applicable distribution period for the estate inherited IRA is A’s remaining life expectancy. Based on A being 85 in 2020, the 2021 beneficiary divisor is 6.6. Normally, that divisor is then reduced by 1.0 each year, but there are new IRS RMD tables going into effect in 2022, so the divisor must be reset and that process produces a 2022 RMD divisor of 6.1, 5.1 for 2023, etc. Therefore, the inherited IRAs will be drained in either 2027 or 2028. The 10 year rule does not apply to estate beneficiaries or to the beneficiaries of the estate or other estates eventually inheriting this IRA. Of course, even though the distribution period is restricted, it is still preferable to a lump sum distribution, which the financial institution hopes to inflict. This policy is typical for banks, less so for major brokerage IRA custodians.
You might call their bluff and send them a letter assigning the inherited CD IRA out of A’s estate to J and D. This letter should also make it clear that you are not authorizing a distribution to A’s estate. The ages of J and D are immaterial, they must take annual RMD distributions using the same divisors that the estate would have used. I assume you do not want to keep this estate open for several years. The CD may include a “death put” which cashes out the CD on the DOD without a penalty, but you will have to determine the CD provisions for deceased depositors, and those might be with the CD papers. The best solution is that the bank will transfer cash to the assigned inherited IRAs out of A’s estate. If the CD terminated a year ago, there might be 0 interest earned since the DOD, but the CD was probably not yielding much anyway. I wouldn’t wait to send the assignment letter as further delays could exacerbate the many issues here.
L’s IRA – I think L’s IRA will pass under state intestate provisions and not to A’s estate, but you might check the IRA agreement and also with an estate attorney. You will have to be careful to make sure your assignment request is correct. Hopefully, this IRA is not with a bank. 2021 RMD divisor is 4.5, 3.7 for 2022 with the reset, and divisor reduces by 1.0 for each year thereafter.
Yes, the assignment process is difficult enough, but a series of estates might make it impossible. The size of these IRAs should be considered in making your decision regarding how much you want to press to get the assignments done.
Permalink Submitted by Donna Allen on Fri, 2021-10-01 18:04
Hi Alan,1) L’s IRA is >$200K, so I am checking with multiple resources. Right now Morgan Stanley holds the Account. FL intestate provisions would pass the asset to L’s Neices and Nephews per stirpes J, D, R, M & S. Since no one seems to know how to handle this, what do you think is the safest way to proceed?2) A’s IRA is less that $15K, so I will ask for lump sum to estate.THANKS SO MUCH FOR YOUR RESPONSE!