RMD After Death

[Guest Ajay]

Here is the Issue:

My client, Lets call him Mr. Doe, received RMD Checks regularly. But due to his sickness was not able to deposit them in his bank account. Mr. Doe dies, the checks are still not deposited from late 2004. Can his kids deposit those checks now, assuming that the checks will be honored? If the checks are not honored can they ask for the checks to be reissued? Will there be any kind of penalty or tax on late deposits?

Thank you all for your help.

[John G]

The older checks have probably expired and are not likely to be honored by either the bank or the custodian. Call the custodian and explain the problem, ask for their advice. The more recent checks are probably still OK. They may reissue the older checks or suggest that you deposit them anyway if they can clear the reject setting on their end. I am sure that this problem has come up before. Be sure to ask for the IRA/Roth department - do not rely upon the answers from the general staff.

Yes, you do potentially have a problem, I leave it to others to clarify the "constructive receipt" issue that must be established by prior precedents. I suspect that a letter of explaination attached to the appropriate tax return will be sufficient. You could ask for any penalty to be waived because of the medical circumstances.

NOTE TO OTHER READERS : This is one good reason to use automatic deposit for these kinds of distributions. The process would have continued even if the person was hospitalized.

[mbozek]

Q was 1099 issued to the decedent for the 2004 checks that were issued before Doe's death? Under constructive receipt rules the checks will be taxed to Doe even if not cashed before his death so there will not be any tax penalities. (Note make sure RMD for 05 is distributed by 12/31/05). However, the checks will be deposited to his estate as after tax funds to be distributed under his will. New checks may need to be issued if the bank will not honor the old checks. Checks issued after his death may be taxed/paid to his estate. (You need to review state law to see if checks issued after owner's death can be distributed to IRA beneficary.) I dont know if a trustee will reissue uncashed checks issued after his death to the designated beneficiary. Trustees usually take the position that they pay the owner until notified of his death.