Complicated Inherited IRA Headaches
Mom died April of 17 well past age of RMD. Left two IRA’s (about 160K or so, probably worth less now) to be split 6 ways between kids and grands. I think there was one for my dad as well but am not sure. I am one of beneficiaries and the executor of both her and my dad’s estates. He was the admin of hers and never settled hers. Lucky me. Nobody trains you for this job.
For whatever reasons, at least the first two were never claimed. No idea of the status of the other but I have not come across any 1099’s while doing the taxes my dad left undone since 2016 (face palm). The custodian apparently put them into our names, but paperwork was never filled out and distribution never received. I received a 5498 in the mail dated 5/19 showing my share of ONE of the accounts.
As executor, I called and asked for whatever paperwork needs sending to be sent, but have been put off. It is my understanding that this has not yet been sent to the state but is considered “frozen”.
I do not have an attorney, but have been reading and it looks like we are all in a bit of trouble. Nobody really advises the average Joe of the ramifications of all this.
I understand we have until December of this year to claim the entire amount, and are likely to be subject to all kinds of penalties etc.
It looks to me like my best option is to roll it over to charity, but I don’t think the other beneficiaries are going to be happy about any of this.
Any suggestions/advice/options/ other ramifications I’m not aware of? For a few of us, amending our taxes is not an option. My 22-yr-old niece was probably counting on this money and it’s not looking good for her. The rest of us I’m not as worried about.
Thank you in advance.
Permalink Submitted by Alan - IRA critic on Fri, 2022-04-08 04:23
This is a real mess, and in a number of yet unidentified areas that makes it too long and detailed to resolve here. As you probably already now, these issues compound over time with each month that goes by making many of the separate issues ever tougher to resolve.
In the big picture, priority #1 is to make sure that no accounts have been or are about to be escheated to the state, after which it may be difficult to reclaim the funds. This would also involve withholding being paid to the IRS for the account of the TIN of record. If the custodian knows of a death, they freeze the account from further transactions with the exception being to send the proceeds to the state. If these accounts have been frozen, there have been no distributions so the balance would only change due to investment results, which have been very good for the last 5 years, so I don’t know why you think that the balance declined.
Otherwise, the only way to unravel this is in chronological order, year by year because each fact about the accounts triggers a different required action. I would try to get organized and make a list of date and forms you have. You provided mom’s date of death, but what about dad? List each account, name of custodian and owner of account and the year of that documentation.
For each account, you need to determine the exact beneficiaries at the date of death. If individuals, those accounts do not fall under the estate executor’s responsibility. The last thing I would worry about here is RMDs, it is more important just to work with each custodian and identify which documentation needs to be provided for each beneficiary, and of course the death certificate. Again, the accounts are probably frozen meaning that no distributions should have been taken, and that is why there are no 1099R forms. If no distributions have been issued, there will be no need to amend any tax returns.
This adverse situation could be made impossible without an experienced and cooperate IRA custodian for each account. Given the situation and age, the custodians are probably preparing to send the accounts to the state if they haven’t already. The beneficiaries need to prevent that if possible by cooperating however they can, with the custodians and with each other.
This situation is way beyond the purpose of this forum. Best I can offer is to address specific questions you have. There is no way I can provide an entire game plan or this post could become the longest on record here.
Permalink Submitted by Elyse Litt on Sat, 2022-04-09 01:27
Thanks for your reply, I apologize for the duplicate post (newbie here), and I guess I take the prize for worst-case scenario? To answer your q’s, I spoke to custodian today. Funds are still available and they await a decision on what we want to do with them. Will be sending out a package of papers to sign. Apparently all 6 of us have to claim at the same time.The one for my dad (who died this February) is an entirely different entity (I just found that out–it was intestate, my dad never claimed it, and it’s going into my mom’s estate..it is NOT an IRA so it’s irrelevent). I know who all the IRA beneficiaries are and when but there isn’t any paperwork because nothing was claimed. There is about 170K, about 39 each for the 3 children and about 19 for the 3 grands. Pretty sure they have the death certificate. I have read that you shouldn’t claim them without consulting a pro. I’m asking for myself as much as for the others what the best path is. I believe we can each take the entire sum by 12/31 and just pay taxes on that, which may be the best course? It alleviates all the penalties, right? I don’t really have much in the way of documentation, only this one form 5498 and what the lawyer jotted down for my dad when mom died, but it’s pretty clear who gets what as Wells Fargo (the custodian) told me today. I mostly want to make sure we don’t have to go back and amend taxes. If that were the case I would definitely roll mine over to charity. Also if it’s going to be eaten up in penalties, I’d consider charity and mention that as an option to the others.
Permalink Submitted by Elyse Litt on Sat, 2022-04-09 03:54
Thanks for your reply, I apologize for the duplicate post (newbie here), and I guess I take the prize for worst-case scenario? To answer your q’s, I spoke to custodian today. Funds are still available and they await a decision on what we want to do with them. Will be sending out a package of papers to sign. Apparently all 6 of us have to claim at the same time.The one for my dad (who died this February) is an entirely different entity (I just found that out–it was intestate, my dad never claimed it, and it’s going into my mom’s estate..it is NOT an IRA so it’s irrelevent). I know who all the IRA beneficiaries are and when but there isn’t any paperwork because nothing was claimed. There is about 170K, about 39 each for the 3 children and about 19 for the 3 grands. Pretty sure they have the death certificate. I have read that you shouldn’t claim them without consulting a pro. I’m asking for myself as much as for the others what the best path is. I believe we can each take the entire sum by 12/31 and just pay taxes on that, which may be the best course? It alleviates all the penalties, right? I don’t really have much in the way of documentation, only this one form 5498 and what the lawyer jotted down for my dad when mom died, but it’s pretty clear who gets what as Wells Fargo (the custodian) told me today. I mostly want to make sure we don’t have to go back and amend taxes. If that were the case I would definitely roll mine over to charity. Also if it’s going to be eaten up in penalties, I’d consider charity and mention that as an option to the others.
Permalink Submitted by David Mertz on Fri, 2022-04-08 13:39
With regard to accounts that had (only) designated beneficiaries, the only information you are entitled to as executor is the date-of-death value and anything regarding transactions prior to death. The executor is not involved in transferring the funds to separate inherited IRAs for each of the designated beneficiaries or obtaining any distributions (unless the decedent’s estate was listed as a beneficiary in addition to the designated beneficiaries). However, the executor can be helpful in informing beneficiaries, if known, of their need to be involved with the IRA custodian(s) and perhaps coordinating with the beneficiaries to make sure that any unsatisfied year-of-death RMD is satisfied by one or more of the beneficiaries.