Client walks in the door needing to probate her Mom’s estate. Mom was 92 at time of death. Client discloses that “Mom” had an IRA at a local bank. Upon further digging, IRA was originally Dad’s. Mom was beneficiary. At the time of Dad’s death, Mom lacked mental capacity to transfer the IRA into her name. Instead, their only child (daughter), had the IRA transferred to Mom using daughter’s power of attorney. However, Bank would not allow POA-holder to name herself the beneficiary. Long story short, Mom’s estate is the beneficiary of the IRA and now Mom is deceased.

In this case, we’re dealing with a entity beneficiary and an account owner that died AFTER his required beginning date. Thus, according to publication 590-b we can distribute by dividing the account balance at the end of the previous year by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. We use the life expectancy listed next to the owner’s age as of his or her birthday in the year of death and we reduce the life expectancy by one for each year after the year of death.

But how does this actually work in practice? If the estate is the beneficiary, that means the distribution checks will be made payable to the estate. So does that mean we have to keep the estate open until the IRA is fully distributed? I really don’t want my client to get hit with all the taxes over the course of just one or two years, but at the same time, keeping the estate open for the next decade or more simply isn’t feasible. The administration costs alone will likely outweigh the benefits of stretching out the taxes.