Estate Tax

[dmb]

A plan participant dies and his wife is his beneficiary. She rolls his plan money into an IRA. She dies and leaves all monies in an estate (including her IRAs). Her children are the beneficiaries of the estate. Is there anyway to escape the estate taxes to the children?

[Guest hank]

Do you mean that her estate was designated as the IRA beneficiary?

[dmb]

yes, the estate is the bfcy of the IRA and children are the bfcy of the estate.

[Guest hank]

OK. I think the amounts in the IRAs will be included in her gross federal estate and subject to US estate tax (assuming the estate is large enough). Most states would also include the IRA amounts in the state probate estate for purposes of state inheritance taxes. Whether there are opportunities for post-mortem tax planning is outside my expertise, but I don't think the IRAs can escape death tax at this point. It would have been preferable (I think) to designate the children as beneficiaries of the IRAs.

For what it's worth.

[dmb]

The tax was not really the issue but rather if there was any way to spread out the distribution to the children past the 5 years on the fathers retirement money. Thanks again.

[Fred Payne]

I'm not sure why you make reference to the "5 years on the fathers retirement money." Once the assets are rolled into a surviving spouse's IRA, all Minimum Required Distributions are based on her beneficiary designations. The fact she was a beneficiary of her husband's IRA is of no relevance to the situation.

The important question to ask is when did the IRA owner die? If it was in 2001, the answer might be different than if she died prior to 2001. Also, did she die before or after her Required Beginning Date (the April1 after the year in which she turned age 70 1/2)?