Very complicated situation, a lot to unpack: My client’s father died in 2013. Estate has been settled and closed for years. My client just got notice from his father’s previous employer that he has a cash balance pension lumpsum benefit of $150,000. Not sure if the father’s age (born 1966) or whatnot prompted the letter – or if they just realized he passed. Unfortunately, the client’s father didn’t have a named beneficiary (was divorced, so ex has no claim) – and the company will pay out the the benefit as directed by his estate (my client is executor). As far as I know, my client was/is the sole beneficiary of the estate per the Will.

The distribution form sent shows an option for an inherited IRA. Initially, the thought was to set up as a normal inherited IRA FBO of my client- but after reflection I believe this isn’t the case. My questions/thoughts are:

1) The inherited IRA should be set up for the benefit of the Estate, via a direct trustee-to-trustee transfer. Also, most research suggests that as a non-designated beneficiary, the client has 5 years after the year of death to fully liquidate the account. In the interim, the estate would take the distributions and have to remain open over that 5 year period. Does the distribution window (5 years etc.) start now? Other thoughts?

2) Recent IRS PLRs (and further research) suggests my client would be able to set up an inherited IRA FBO of himself and do a direct transfer to an inherited IRA in his name from the inherited IRA FBO the estate. This would all be within the same firm. My client would then have to continue on the initial 5-year distribution timeline but wouldn’t have to have the estate involved/open/etc. Thoughts?

3) The client’s 5-year distribution window opens now that he has received notice of the assets/distribution option. Again, not sure if this is due to the plan distribution rules or the Cash Balance plan (and beneficiary) simply did not know of the death or the asset existed.

Very appreciative of any insight that can be provided.

Thank you!

TC