I have a client whose mother recently died with a small IRA account naming the father as primary beneficiary and a niece as a contingent beneficiary. Unfortunately, the father died three weeks after the mother without ever updating the beneficiaries (or making the IRA his own). The mother was taking RMDs. My client, the daughter, has a brother – and they are named in the will to receive everything 50/50. My client tells me that the other firm is telling her that they have set up an “estate account” for the IRA. However, they are also telling her that her and her brother can move the funds into separate beneficiary IRAs and thereby take advantage of a 10-year payout.

A few questions have now arisen. First, is this consistent with your understanding of the rules?…once titled in the name of the estate, can the funds be moved to a beneficiary IRA? Second, if so, could it be that the IRA custodial agreement says that, when beneficiaries are not named then the kids are the default option – and it is this language that is giving them the opportunity to open up beneficiary IRAs? (I have requested a copy of the custodial agreement). If the IRA stays in the estate subject to a 5-year payout rule, are the estate income tax brackets used that would cause higher marginal tax rates to apply at much lower amounts of income? Thank you.