IRA with no named benficiary

Submitted by Bob Keller on Tue, 2023-03-07 20:09

Taxpayer, age 90, a widow with no child and neither sibling nor parent, died in March 2022 before taxpayer took her 2022 RMD. IRA had no named beneficiary. Substantial estate but IRA of about 80kwould be the only probatable asset. Trustee/Executor was advised by the estate attorney that probating the estate, including a geneology search for cousins/nieces and nephews, would cost close to the value of the IRA. Attorney advised trustee to essentially ignore the IRA and not subject it to probate.
I’m preparing the deceased’s 1040 and the trust’s 1041. I’ve explained the five year rule for when IRA assets become part of the probatable estate and have also explained the 50% penalty for failure to distribute RMDs by the end of the five year period.
I also cautioned the trustee about placing himself in a position where, because of his fiduciary duties, the IRS may seek penalty payment from his personal funds. Trustee is wondering whether an IRA can be abandoned to avoid paying tax and/or penalties.
Other than advising the trustee to seek a second opinion from another attorney (or advising me to not work with this client), what would you suggest?



Submitted by Alan - IRA critic on Tue, 2023-03-07 23:36

  • Since there is a trust, might there be a pour over will as well? If not, the estate is responsible for completing the 2022 year of death RMD (~8k) for TP by 4/18/23 to avoid having to file a 5329 requesting the penalty waiver. Since TP passed after RBD, the IRA must be distributed over the remaining LE of the decedent annually, which starts with a 4.7 divisor for 2023. While the IRA will be drained in 5 years, this is not the 5 year rule where there are no annual RMDs required. 
  • Estate attorney should know, but perhaps the state intestate rules do not require such an exhausting and expensive search. Is there no living child, or did TP never have a child?  State intestate statutes can be found on line.
  • It’s not clear whether the Secure Act 2.0 reduced excess accumulation penalty and Form 1040/1041 3 year SOL will equate to more diligent IRS enforcement of the excise taxes, or how allowing the IRA to escheat to the state (amounts to a taxable distribution and 1099 R) would affect prior year excise taxes.

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