Estate Inherits IRA

Submitted by Anne Arbuthnot on Fri, 2019-01-11 16:49

A client’s mother passed away with the only beneficiary on her IRA being her deceased husband. The IRA was moved to an “Estate of” IRA registration. The estate was probated and identified the 2 children as only beneficiaries. The Executor submitted a letter of instruction to the Fiduciary directing them to distribute 1/2 of the account to each beneficiary in Inherited IRA accounts in each of their names. The Fiduciary has said that it sees no IRS provision allowing that, that the account must remain in an account with the Estate as the beneficiary unless the client can get a private letter ruling. The client does not want to keep the estate open for a long period of time in order to avoid a large taxable distribution.

Can you help with what tax code provision allows the IRA to be distributed to the beneficiaries as Inherited IRAs?

*RMD distributions have been taken on the Estate IRA each year since the client’s mother passed



Submitted by Alan - IRA critic on Fri, 2019-01-11 18:42

  • This is not in the tax code. Acceptance of assignment has been granted by the IRS in dozens of PLRs for years. All competent IRA custodians are aware of this, however they can still refuse to assign the IRA. This can be stated in their IRA agreement or if not stated it can be in their own operating procedures. It is not clear if they simply do not understand the situation or are stonewalling hoping that client will relent to a lump sum distribution. A few custodians simply include in their agreement that they will make a total distribution to the estate and will not even pay annual RMDs, so it could be worse.
  • Following are PLRs approving the transfer of an inherited IRA from the estate to the estate beneficiaries: 2002-34019, 2008-50058, 2011-28036. There are several others permitting transfer from a trust to the trust beneficiaries, an analagous situation. However, it may be necessary to have the inherited IRA transferred to a larger IRA custodian that has agreed to allow such a transfer in advance of their receiving the inherited IRA. This used to be the solution several years ago, but there are not many custodians taking the position of this one. The problem is that even if this were included in the IRS Regs, this custodian could still refuse such a transfer and that may actually be better than suggesting a client spend around 20,000 for a PLR.


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