Do inherited IRA's need to stay in name of decedent?

[Guest garycahn]

My mother died this year. The sole beneficiaries of her estate are her 4 children. My mother had several IRA's. Estate taxes will be due on her estate, and therefore I understand that an IRD deduction will be available to her children, because they are inheriting the IRAs.

I have two questions:

1. Do the IRA's have to remain in a single account in my mother's name indefinitely, or are the 4 children able to divide the IRA up into 4 separate pieces so that each of us can invest the IRA money as we see fit?

2. One lawyer has told us that we are able to divide the IRA into 4 pieces, but that we will lose the IRD deduction if we do so. According to him, if we wish to take the IRD deduction, we need to keep the IRA intact in our mother's name. Is this lawyer correct?

[KJohnson]

I think they can be split, but each IRA must remain in the name of your deceased mother. Each IRA should be titled:

Mary Smith [Mother], deceased, for the benefit of Jane Smith [Child #1]"

Mary Smith [Mother], deceased, for the benefit of John Smith [Child #2]."

etc.

Be sure to split them by the end of the calendar year following the year of death if you want to use separate life expectancies for required distributions.

I have never heard that you might lose the IRD deduction by doing this. Does he have a cite for this?

[Guest garycahn]

I did not ask him for a cite, but I certainly can go back and do so.

[mbozek]

Did the IRA beneficiary designatation divide each IRA into separate shares for each beneficiary or did the IRA beneficary designation state that payment is to be made to multiple beneficaries? If the IRA beneficiary designation states that each child was to receive a separate share then each beneficiary can recieve the share in a separate IRA payable for the life of that child.

[KJohnson]

Even if there was not a specific designation of separate shares, I thought that the new regs allowed you until the December 31st of the year folloiwng the year of the IRA holders death to segregate into separate shares for the named beneficiaries.

[RTK]

Even the old proposed (401(a)(9)) regulations, with a little interpretation help from the private letter rulings, would allow separate IRAs to be established for the children to facilitate different investment and distribution objectives (at least for death before the annuity starting date). However, under the old regulations, the oldest child's life expectancy had to be used to determine the required minimum distributions.

I know that a couple of the major players required the mother's IRA to be registered in the child's social security number in such case, but would designate the IRA as a beneficiary distribution account.

[txdd]

I believe that the final regs changed the date to determine designated beneficiaries to September 30th of the year following death. The accounts would have to be split before then to consider each child individually.

Also, the children would have to be named as beneficiaries on each IRA to enable the split. On any account with the estate as the named beneficiary, the children would not be considered for inherited IRA's.

[KJohnson]

txdd--The date for determining beneficiaries was moved up but I don't think the date for determining separate accounts was changed.

By establishing separate accounts you are not changing beneficiaries. The final regs, like the proposed regs state:

However, the applicable

distribution period for each such

separate account is determined

disregarding the other beneficiaries of

the employee’s benefit only if the

separate account is established on a date

no later than the last day of the year

following the calendar year of the

employee’s death.

What do you mean by "Also, the children would have to be named as beneficiaries on each IRA to enable the split. "

I agree that an IRA may only be "split" among children who were named beneficiaries to the IRA as of the September 30th of the year following the year of death. (and that separate accounts must be established for those individuals by the December 31st of the year following the year of death if individual life expectances are to be used). However, after the split, each IRA would be in the name of the decedent with only one child as the beneficiary payee.