Can successor beneficiaries be established for an estate-owned inherited IRA?

Submitted by Scott Amis on Wed, 2024-10-02 23:35

My wife inherited an estate-owned IRA from her aunt who had no children. My wife is the sole executor and sole beneficiary of the estate. Cetera is the IRA account holder at this time. We attempted to set up our Family Trust as the beneficiary but we were told no beneficiaries could be established and it depended on how her aunt’s will was written regarding successor executors. Which in itself is confusing if the current executor (my wife) cannot established a successor beneficiary. Can you provide guidance on establishing a successor beneficiary? Can the executor (my wife) transfer the estate-owned IRA to another investment firm and in doing so, establish beneficiaries? A legal instrument of some sort? At this point, it seems the only way to establish beneficiaries for these funds is to take a lump sum distribution and create a new account. Thanks in advance for your response.

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Permalink Submitted by Alan - IRA critic on Thu, 2024-10-03 10:58

Any distribution could not be rolled over because the beneficiary is not the surviving spouse.

As executor, you wife should be able to assign the inherited IRA out of the estate to herself as the will beneficiary, and then she would have an inherited IRA to which she could name her own successor beneficiary. But there are still several IRA custodians who don’t acknowledge that the IRS has allowed this for decades, or perhaps they just don’t want to deal with several inherited IRAs, since some estates have many beneficiaries. Large brokerage firms will cooperate with such assignment requests, and sometimes the only solution is to directly transfer the estate IRA to such a firm to get this done. A firm in which she has current accounts may be a good place to start if they accept assignments. If so, she should set up an estate inherited IRA with the new firm, have them initiate a direct transfer to their estate IRA, and then she could provide written instruction as executor to again transfer to an inherited IRA under her SSN. It makes no sense for an estate to have to stay open or accept a lump sum distribution in order to close it. Of course, if aunt left behind a large amount of bills, final taxes, etc, your wife will either pay them from the estate or from her own assets. Then how much will be left?

Note that an assignment to an inherited IRA will not change the RMD calculations. If aunt passed prior to her RBD, the 5 year rule applies and if she passed post RBD, the remaining single LE of aunt applies.