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Can an IRA be left in an estate and the RMD be distributed each year t


Guest Wendell
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Guest Wendell

The scenario goes like this.

Taxpayer A has an IRA which he named B as his beneficiary. A dies and B starts to receive the required minimum distribution each year. A & B are brothers and both are over 70-1/2 years old. The Ira has been left in the name of A with B listed as beneficiary.

B now dies. C is B's wife and is sole executrix to his estate. The only asset in the estate is the inherited IRA from A. The rest of property was jointly owned by B & C.

Can C continue to receive B's required minimum distributions through the estate or does the entire amount of the inherited IRA become taxable upon B's death?

Information such as code section, court decision or private letter ruling would be appreciated.

Thank you.

Wendell

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The final regulations Reg. 1.401(a)(9)-5, A-5 ©(1) indicate that the life expectancy of the beneficiary is reduced by 1 each year. There is no provision or requirement for shortening the period because the beneficiary has passed away.

Some custodians will allow the beneficiary to name a person to receive benefits if they don't live for the period measured by their life expectancy when payments begin. This should be done before the beneficiary passes away.

Choices are: Keep estate open or have executor assign benefits to beneficiary of estate. I'd choose whichever alternative the custodian will go along with. Remember that the payments are minimums and they could be accelerated at the request of the beneficiary. Often the custodian tries to pay out the entire account when the beneficiary dies but the regulations don't support this. If a check for the entire balance is sent, the executor should send it back and request that payments be made in accordance with the regulations.

Good luck.

Mary Kay Foss CPA

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Most advisors seem to ignore the need to review the terms of the IRA custodial agreement to find out what happens when the designated bene dies. Most IRA custodians permit the bene to designate a sucessor bene to continue the payments after the death of the bene. Otherwise the IRA custodial agreement provides a default bene. Why not read the document.

Also I dont understand the need for keeping the estate open. Being the executrix of the estate only is important if the IRA is probate property. If the only property owned by the decedent is jointly owned or non probate property then there is nothing to probate. IRAs are non probate assets and only become probate property when the IRA benefits are payable to a dececent's estate and the decedent has a valid will. If the IRA permits payment to continue to a person designated by the IRA beneficary then the property will be transferred outside of the estate. The Spouse should retain an estate planning attorney to determine the proper transfer of the IRA assets and the need to probate the IRA.

mjb

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