An Estate Inherits an Inherited IRA
What are the distribution options when a beneficiary inherits an IRA from someone who had already begun taking required distributions and then the beneficiary dies without naming a successor beneficiary?
The following article @ https://irahelp.com/slottreport/what-happens-your-ira-when-your-beneficiary-dies, explains that the IRA agreement will say that the inherited IRA now goes to the beneficiaries estate and it becomes a probate asset but It can still continue paying out over the original beneficiaries life expectancy subtracting one each year.
The IRA custodian “Charles Schwab” has indicated that their only option is to liquidate the IRA in a lump sum to the estate. Is there a code section or a regulation that we could use to point them to the rule that allows the IRA distributions to be spread out over time ?
Also, the estate has two beneficiaries. Is there any chance that Schwab could simply assign the beneficiary IRA to the Beneficiaries of the Estate? This would allow the estate to close and the estate beneficiaries could receive their respective required distributions directly from their own beneficiary IRA account. If this is possible could you also supply any rulings or regulations that we could pass on to Schwab.
Thank you,
Dave Rains
Permalink Submitted by David Mertz on Thu, 2019-01-10 23:56
While the law permits the IRA to be transferred to the estate intact, the custodian’s IRA agreement can be more restrictive. All of the IRA agreements I’ve looked at state that if the beneficiary does not designate a successor beneficiary, the remaining interest in the inherited IRA will be *distributed* to the beneficiary’s estate upon the death of the beneficiary. Such a distribution cannot be returned to an inherited IRA. You’ll need to review Charles Schwab’s IRA agreement to see if it has a similar restriction.
Permalink Submitted by Alan - IRA critic on Fri, 2019-01-11 00:31
The IRS Reg that enables a successor beneficiary to continue the divisor schedule of the designated beneficiary is found in 1.401(a)(9)-5 Q 7. I am sure that Schwab is aware of that, however an IRA custodian is allowed to adopt more restrictive distribution rules than the IRS allows. Schwab’s agreement will direct a lump sum payout to the estate of the IRA owner if there is no named beneficiary, so it goes without saying that the option would be no broader for the estate of a beneficiary. There is also plenty of precedent that if the agreement is silent on a particular situation, the custodian is allowed to act using their operating procedures that are not stated in the agreement. Suffice it to say that all IRA custodians have a tendency to avoid drawing out distributions once an estate inherits the account. They do not wish to get dragged into estate disputes possibly involving dozens of intertate or will beneficiaries. That said, there is nothing said about executors assigning the IRA and therefore the custodian will sometimes decide to accept or reject assignment prior to the single distribution payout date. I think if the executor acts fast and efficiently, there may be a chance at assignment if the list is quite short. The receivers of the inherited IRA accounts would then have to continue the RMD schedule of the deceased beneficiary, or the 5 year rule if that applied.
Permalink Submitted by Bruce Steiner on Sun, 2019-01-13 11:36