RMD from Bene Accounts

Submitted by Aryn Sands on Mon, 2010-05-03 17:09

I have 7 bene’s for a woman who ied this year. She did not take her RMD yet. I was told that each Bene can take their portion of the RMD. Two fo the bene;s are going to cash out their portion. This more than covers the RMD. Can the rest of the Bene’s be absolved this year for this amount or do I still need them to prorate an amount out of their accoutn for the deceased 2010 RMD?



Submitted by Alan Spross on Mon, 2010-05-03 18:44

The RMD for the decedent can be satisfied by any combination of distributions to the beneficiaries. Therefore, the cash outs should eliminate the need for the others to take an RMD for 2010. This is true whether the cash outs come before or after the creation of separate accounts for the other 5 beneficiaries.



Submitted by Aryn Sands on Mon, 2010-05-03 18:48

Great!

The problem is that is practice no one will allow anyone to sign for the deceased to get the money out. They need it to go to the bene’s accounts first.



Submitted by Alan Spross on Mon, 2010-05-03 19:59

Correct, but I may not be recognizing the full situation here.

The IRA custodian will request submission of a death certificate and other information including the SSNs, current addresses etc for each designated beneficiary. When they have collected this information, they should allow distributions to those who supplied all the required information. If the estate is the beneficiary, a trust, or some other listing such as “per stirpes”, considerable time could pass before the custodian receives all the info they require. Obviously, if they make a distribution under an assumption that turns out to be incorrect, they are responsible for recovery of the funds or will have to make up the difference. The more beneficiaries there are and the more complex the beneficiary designation is, the more chance for complexities to develop during the process. Further, the requirements for documentation differ slightly from custodian to custodian. Some require that a beneficiary account be set up for each beneficiary even if that beneficiary just wants to cash out their share. Is this the problem here?



Submitted by Aryn Sands on Tue, 2010-05-04 00:43

Exactly, custodian requires opening of new bene accounts. They were per stirpes so now we have 7 benes. Son died two weeks after mom.

The custodian has frozen the account. We had to get a special request to go to cash if all parties agreed…we were concerned about the market. Crazy pain in the butt.



Submitted by Alan Spross on Tue, 2010-05-04 01:26

You indicated that the son passed AFTER the IRA owner. If so, the per stirpes designation would not apply. It only applies if the beneficiary pre deceased the IRA owner.

If the son was the designated beneficiary, eg. “Joe Smith, per stirpes” and Joe passed after the IRA owner, the IRA will go to Joe’s estate. That will require time to probate the will to determine where the funds will end up. It would also result in the RMD being based on the deceased son’s non recalculated remaining life expectancy rather than that of the 7 successor beneficiaries.



Submitted by Bruce Steiner on Tue, 2010-05-04 02:35

The deceased son’s executors may be able to disclaim his share. In that case, the deceased son’s share will go as if he had predeceased his father. If the beneficiaries were the IRA owner’s issue per stirpes, then the deceased son’s share will go to his children, who will be able to use their life expectancies.

In some states, a disclaimer by an executor requires court approval.

Bruce Steiner, attorney
NYC
also admitted in NJ and FL



Submitted by Aryn Sands on Tue, 2010-05-04 15:51

Alan,

That is not the understanding that I have of CA probate code. If it were, per stirpes would be a bigger mess than leaving the wording out??? Are you specifically talking about probate code or speaking in generality?



Submitted by Aryn Sands on Tue, 2010-05-04 16:00

Alan,

K. I get it. But, we are not going to probate for such a small amount. We will see what the custodian does.



Submitted by Bruce Steiner on Tue, 2010-05-04 16:05

Alan: if you were responding to me, I wasn’t referring to California or any other state in particular, since the original poster did not say what state’s law governs in this case.

All we know is that the IRA owner’s son was a beneficiary (we don’t know if he was the only beneficiary or one of several beneficiaries), that he died two weeks after the IRA owner’s death, and that if the son had predeceased his father his share would have gone to his issue.

(An IRA owner who leaves his IRA to his children would more likely want the share of a predeceased child to go to the deceased child’s issue than to his surviving children, so providing for one’s issue to take per stirpes is common. Alternatively, an IRA owner could leave his IRA to his surviving children if that’s what he wants. There are other possibilities as well.)

I am not aware of any state whose law does not allow a beneficiary of a nonprobate asset such as an IRA to disclaim it. So if the son were still alive, and all of the other requirements for a disclaimer were met, the son could disclaim the IRA, or his interest in the IRA.

So I suggested the possibility that the son’s executors might disclaim the IRA (or the son’s interest in the IRA) on behalf of the son. Whether that makes sense depends upon whether it’s better for the son’s interest in the IRA to go to the son’s issue (who could then use their life expectancies for the stretchout), or to the son’s estate (in which case the son’s estate and the beneficiaries of the son’s estate would be limited to the son’s life expectancy).

In some states, an executor needs court approval to disclaim. Even if court approval is not needed in the particular state, the son’s executors would want the approval of the beneficiaries of the son’s estate (if they are not identical to the son’s issue) before disclaiming.



Submitted by Aryn Sands on Tue, 2010-05-04 18:18

Bruce,

It was me responding to Alan. I understand what you both are saying. However, CA probate is expense and time consuming for what amounts to a few thousand dollars per heir. I will leave it to the family to make the call. We may be able to get the custodian to split it up. The result is the same, just no government intervention.

Thanks for clarifying. Per stirpes works if client dies after bene’s and not in this strange situation where son was on death bed when his mother died. There was no way to have him open an accoutn and designate his own bene’s given the situation and time.



Submitted by Bruce Steiner on Tue, 2010-05-04 18:51

I don’t understand the comment about California probate. You probate the Will, not the IRA. Since the IRA goes to a named beneficiary or beneficiaries, it’s not a probate asset.

How difficult or expensive it is to probate a Will in California? We’ve had a few estates where the decedent had property in California (or where the decedent lived in California and we came in because the decedent had property in NY, NJ or FL), and, despite what people sometimes say, it didn’t seem that it was particularly difficult or expensive to probate the Will in California.

Naming the son “per stirpes” means that if the son had died before the father, the son’s issue would have automatically taken his place as beneficiary or beneficiaries. It also means that if the son’s executors disclaim on his behalf, it will be as if he had predeceased his father, and his issue would take his place as beneficiaries. Since the son survived, if the son’s executors do not disclaim the son’s interest will be part of his estate, and will pass in accordance with the son’s Will (or by the laws of intestacy if the son did not have a Will).

§ 267(b)(13) of the California Probate Code specifically permits a beneficiary of an IRA to disclaim the IRA benefits.

§ 277(b) of the California Probate Code says that a personal representative (executor) can disclaim on behalf of a decedent, but that, except as provided in § 10400 et seq., it requires court approval.

§ 10400 et seq. is the California Independent Adminstration of Estates Act. Essentially, the personal representative can (upon notice to the beneficiaries) ask for authority to administer the estate without court supervision. In that case, § 10519 allows the personal representative to disclaim without court approval, but has to give notice to the beneficiaries of the proposed disclaimer (and then get court approval if a beneficiary objects). Of course, an executor probably wouldn’t disclaim unless the beneficaries wanted him/her to disclaim.



Submitted by Aryn Sands on Tue, 2010-05-04 19:32

The comment was in reference to disclaiming. My guess is that would go through a CA probate court. The custodian would want some documentation on this and any time you go to court it will cost money. I honestly don’t even know if the guy has any estate planning documents. So, we have the guy owning a right to a piece of his monthers IRA with no beneficiary named. Thus, it will be treated as goingot the guys estate…that to me equals probate court. What am I missing here?

I guess my issue is in practice.

For example, my custodian requires either divorce decree, marriage certificate or court document to do a name change EVEN though the state of CA allows you to change your name without a court document. (I have done it once.) So, my problem is that I will open a can of worms if I go the disclaim route.

Sorry for the confusion



Submitted by Bruce Steiner on Tue, 2010-05-04 22:49

Absent a disclaimer, the son’s interest in his father’s IRA becomes an asset of the son’s estate, and will pass in accordance with the son’s Will (or by the laws of intestacy of the son didn’t have a Will). Probating the son’s Will (or having an administrator appointed if the son didn’t have a Will) is a small and routine part of the work involved in adminstering the son’s estate, and is not worth worrying about.

If the son’s executors or administrators disclaim the son’s interest in the father’s IRA (which, if in California, will require either court approval for the disclaimer, or court approval for independent administration of the estate coupled with notice to the beneficiaries and court approval for the disclaimer if a beneficiary objects), then the son’s interest in the father’s IRA will go to the son’s issue as if the son had predeceased the father, and will not become a probate asset of the son’s estate.

If the son’s executors obtain court approval for independent administration of the estate, and none of the beneficiaries object to the disclaimer, then the son’s executors can disclaim the IRA without needing court approval.



Submitted by Aryn Sands on Wed, 2010-05-05 00:04

Understood, but the custodian’s legal department operates in their own world… 😉 Thanks for the input.



Submitted by brooke wentner on Mon, 2013-10-14 21:23

In the year of death for someone taking RMD: If the decendent has not taken their full RMD for the tax year, do the beneficiaries take the remaining RMD amount based on the decendent’s attained age?



Submitted by mk foss on Mon, 2013-10-14 22:04

The beneficiaries take what the IRA owner was required to take in the year of death – failure to do so could incur a penalty.



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