Estate IRA

Submitted by Shelia Woodie on Fri, 2019-08-16 15:52

What Happens When the Estate Inherits an IRA

I JUST READ YOUR ARTICLE, YESTERDAY THE EXECUTOR CASHED OUT AN INHERITED ira TO THE ESTATE

BECAUSE THEY TOLD HIM HE HAD TO – IS THERE ANYTHING WE CAN DO NOW? hE WAS ALSO TAXED ON THIS.



Submitted by Alan - IRA critic on Fri, 2019-08-16 16:50

  • Once the IRA has been distributed, the recipient will have taxable income to report. For an estate, the taxable income is typically passed through to the beneficiaries of the estate on Form K 1. The beneficiaries tax rates are much less than the estate tax rates, so the beneficiary will lose less to taxes.
  • Who told the executor that a distribution must be made to the estate? That is incorrect. The executor is usually able to assign the inherited IRA directly to the beneficiaries of the estate, who can then distribute the inherited IRA using either the 5 year rule or the remaining life expectancy of the decedent if the decedent passed on or after the required beginning date. Spreading out the distributions over more years will usually result in lower taxes compared to a lump sum distribution. In fact, beneficiaries will occasionally take legal action against the executor for making this error.


Submitted by Bruce Steiner on Sat, 2019-08-17 21:35

In addition to the beneficiaries possibly having a claim against the executor, the executor may have a claim against “they.”



Submitted by Wesley Hunter on Mon, 2019-08-19 21:10

We also have a problem very similar.  Father (76yrs) passes, left traditional IRA to a brother who pre-deceased him. IRA was with JPM, who was extremely difficult to work with. My father’s JPM advisor refused to discuss options, deferring to Estate Services, despite being presented with Letters Testamentary by the Executor (me, the Son). JPM Estate Services refused to discuss with me as well, stating they would only discuss with ‘the attorney on record’. There was no attorney other than mine, representing the estate in probate court, and he did not contact JPM…so we were a bit concerned for the security of the funds. Several similar phone calls, led to a personal visit with a Chase branch (200 miles from my home); the bank advisor there was willing to discuss; presented me with the form required to transfer the IRA to the Estate. I was told the IRA would go to the Estate, and the form required the IRA be closed and the funds were transferred to the Estate Bank Account (with it’s own EIN). The estate probate attorney, the Chase bank advisor, my Father’s previous JPM advisor…no one provided any caution or advice that I had any other options available.  Now, after a meeting again with the same Chase bank advisor and yet another JPM IRA advisor, I find out I should have set it up to rollover into individual estate heirs (5 heirs, age 30 to 80).  But now the damage is done.  Any advice for options now?  Do I still have 60 days to place the money into separate beneficiary IRAs for each of the heirs, who then could choose to stretch or lump sum?  Any advice is welcome.  Also, if we had a ‘claim’ against Chase/JPM, worth exploring and how?



Submitted by Bruce Steiner on Mon, 2019-08-19 21:41

  • The 60-day rollover is only available for the IRA owner and his/her surviving spouse.  The Obama administration had proposed extending this to nonspouse beneficiaries several times, but it was never enacted.
  • Assuming the estate was the default beneficiary, the executor could have spread the distributions out over your father’s remaining life expectancy (as if he hadn’t died).  The executors could have distributed the inherited IRA in kind, in which case the beneficiaries could have set up their own inherited IRAs.  However, the beneficiaries would still have been limited to your father’s remaining life expectancy (as if he hadn’t died).
  • The beneficiaries may wish to consult with counsel as to whether they may have a claim against the executor.  If so, the executors may wish to consult with counsel as to whether they may have a claim against anyone.
  • Bruce Steiner


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