Beneficiary Conundrum
A mother and son each had IRAs and left each other as the primary beneficiaries. The mother died in 2021 and the son died in 2022. The son had dementia and never converted his mother’s IRA into a Beneficiary IRA prior to his death. The sole heir for both of them was the mother’s daughter (her son’s sister). Both recordkeepers are requiring checks be made out to the son’s estate. Does the daughter have the option to open up two beneficiary IRAs and have the proceeds paid from her brother’s estate for the balance of the respective distributions? She would like to delay the taxes until 2024/2025 if possible.
Thanks in advance for any insight.
Regards
Nick
Permalink Submitted by Alan - IRA critic on Fri, 2023-01-27 15:56
The executor of son’s estate should be able to resist any IRA distributions to the estate, and request that the inherited IRA be assigned out of the estate to an inherited IRA for the daughter. However, the IRA custodian appears to be uncooperative at this point, and cannot be forced to accept assignment out of the estate. Moreover, these two inherited IRAs are likely to be subject to different RMD requirements, and if so cannot be combined. Would need to know mother’s age in 2021 and son’s age in 2022.
Permalink Submitted by Nick Pappas on Wed, 2023-02-08 16:44
The executor already deposited the checks from the custodians in the estate bank account. Can the daughter set up Inherited IRAs, one for each, and have the estate issue checks as indirect rollovers?Thanks again!
Permalink Submitted by Alan - IRA critic on Wed, 2023-02-08 18:43
No. Unfortunately once the custodian issued a distribution check to the estate it eliminated any chance of executor assignment or other non taxable transfers. The checks are taxable income to the estate. Sounds like the executor was not firm enough to prevent this taxable distribution. The only recourse now would be legal action against the custodian if they disregarded clear instructions from the executor, but that would be expensive, time consuming, and most likely unsuccessful. Even with an airtight case, it would not be worth pursuing unless the balance was considerable. Whenever an estate inherits an IRA, the custodian will push hard for a lump sum distribution for various reasons.