Discussion:IRA - Estate is Beneficiary

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Discussion Forum Index --> Advanced Tax Questions --> IRA - Estate is Beneficiary


Discussion Forum Index --> Tax Questions --> IRA - Estate is Beneficiary

Textax07 (talk|edits) said:

20 November 2007
I am working with the executor of an estate regarding an issue I'm unfamiliar with, and I'm hoping someone might direct me to additional research sources/documents.

Facts: client dies, post-RBD, with the client's ESTATE as the sole beneficiary of the client's IRA. (There are 17 beneficiaries of the estate, hence the probable reasoning for this decision) The brokerage house has already retitled the account into the name of the estate. IRA is valued around $80,000

Question: Will the executor of the estate be allowed to segregate the IRA into inherited IRA accounts for each beneficiary of the estate without causing distribution? My understanding is that since the decedant named her estate as the beneficiary of the IRA, then the RMD's from this IRA will be based on her original life expectancy and not on the life expectancies of the beneficiaries. So, the stretch will only be for around 10 years. I have read that in several private letter rulings the executor has been allowed to distribute shares of the IRA intact to the ultimate beneficiaries without causing distribution. I've also read that many financial institutions have specific language in the IRA agreement outlining how this situation would be handled by that particular institution. As of yet, I don't have a copy of the IRA agreement but have requested one from the executor.

I'm curious if any of you have run into this situation and how you might have handled it or where I can find more info to research further.

Thanks in advance.

Dennis (talk|edits) said:

20 November 2007
The requirement is that the IRA be distributed to the estate at least as fast as the decedent was taking distributions, so with 17 beneficiaries you could probably arrange to keep it all in fees. ♫ Kill the sucker.

Riley2 (talk|edits) said:

20 November 2007
I don't see how the IRA could be distributed to separate accounts since the named beneficiary is an estate.

WesR (talk|edits) said:

20 November 2007
Hi if the estate is a non see through trust you have no designated beneficiary (DB) and the ADP to the trust would have been the participants remaining life expectancy. If the estate qualifies as a see through trust (one which must meet four tests 1) valid under state law 2) irrevocable upon death of participant 3) benes must be identifiable from the trust instrument and 4)certain docs must be provided to the plan administrator )then the individual benes of the trust are treated as the participants DBs. Then the ADP is the life expectancy of the oldest trust bene or if greater the remaining single life expectancy of the participant. BUT just to make things more interesting ANY estate can transfer the IRA or plan to its benes. This transfer has no effect on the ADP for the benefits but is solely to allow the estate to terminate or cease to have control of the benefits. The transfer of the inherited plan from the estate is a neutral (nontaxable )event for income tax purposes. The bene would be taxed on the IRA as drawn under the above rules. Natalie Choates book has a lengthy discussion on this (PLRs etc) and forms to use to write to plan administrators bye

Dennis (talk|edits) said:

20 November 2007
On the other hand, trying to convince the brokerage house to complete the mountain of paperwork and making sure that the required distributions are taken care of during the process is going to cost the beneficiaries more than they could possibly save -- even if you disregard the cost of annual account fees.

Riley2 (talk|edits) said:

21 November 2007
Wes, how would a transfer of an IRA to the beneficiary allow the beneficiary to be treated as a designated beneficiary of the IRA? Quoting directly from Reg § 1.401(a)(9)-4, Q1, “The fact that an employee's interest under the plan passes to a certain individual under a will or otherwise under applicable state law does not make that individual a designated beneficiary unless the individual is designated as a beneficiary under the plan…….”

Dennis (talk|edits) said:

21 November 2007
Doesn't really change the payout, just breaks it up into pieces. Sort of separate share to the extreme.

CrowJD (talk|edits) said:

21 November 2007
Textax: It would never cross my mind to go this way with it. I'd assume she wanted her Will to control the distribution of this money, free and clear of any further deferral (in all likelihood). (I assume there is a Will since you mention the word "executor"). What was the testator's intent? Is the Executor carrying out that intent? Read the Will. Were powers granted by the Will to the Executor to make these kinds of decisions? There are legal limits to "creativity". That money is also subject to the payment of estate debts. And I agree with Dennis, good luck explaining this, and getting this executed and carried out by the brokerage (assuming it's even possible). You are most likely to get a dazed "Huh?" on the other end of the line.

WesR (talk|edits) said:

21 November 2007
Hi Riley choates book notes "countless private letter rulings have approved the transfer of inherited IRAs and other plans from the trust named as bene of the plan to the individual trust benes." This does not change the MRD payout calculation period. It is still based on whether the trust is a see through or not as I noted above. "The regs allow you to name a trust as bene and still have a DB for purposes of the MDR". She quotes your same reg 1.401(a)(9)-4, QA-5(b) for the four tests. Does this help? I think we are on the same page. I wont be abe to respond until Monday have a great Thanksgiving all. bye

Riley2 (talk|edits) said:

21 November 2007
Ok, I understand now.

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