Without A Living Beneficiary, Does The IRA Go to The Estate?
By Sarah Brenner and Beverly DeVeny
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This week’s Slott Report Mailbag looks at beneficiary rules of an IRA. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.
Question:
Hi, I just read your article that said, if there is no living beneficiary on an IRA, that the IRA goes to the estate. Can you tell me exactly where in the IRS code this is stated? I’m a personal representative in a probated estate and the bank distributed IRAs and CDs in this way. Thanks, Patti
Answer:
The Tax Code has a lot to say about how distributions must be taken from IRAs after the IRA owner’s death but does not really address who should take those distributions. In other words, the Tax Code does not say a lot about who is determined to be the beneficiary on an IRA. Instead, you will want to look to the beneficiary designation form and the IRA document. If no beneficiary is named on the IRA beneficiary designation form, usually a default beneficiary will be listed. This may be the estate. If the documents do not address the issue, then state law will determine the beneficiary. This may also result in the estate being the beneficiary of the IRA.
Question:
If an account holder, over 70 ½, dies before their required distribution for that year, do the beneficiaries take the distribution from the account holders account, payable to them, or do they split the accounts into beneficiary accounts and then take the distributions from each of their accounts? Thanks, Laurie
Answer:
The beneficiaries would be responsible for taking the RMD for the year if the IRA owner did not do so prior to death. Generally, to ensure proper reporting to the IRS, as soon as the custodian is notified of the death of an IRA owner they will retitle the IRA as an inherited IRA. If there are multiple beneficiaries, each would have a separate inherited IRA. The beneficiaries would then each take their proportionate share of the RMD for the year of death from their respective inherited IRAs. The RMD distributions would be reported by the custodian as death distributions taxable to the beneficiaries.