IRA Annuity & RMD

[B21]

I have a client, age 91, who recently died. He has an IRA annuity which has been annuitized & receiving regular payments. His beneficiaries are his 3 children. I understand the annuity payments would satisfy the RMD requirements of Code 401(a)(9). Upon his death, the IRA annuity stopped making payments & his beneficiaries are entitled to receive a lump sum distribution of his remaining annuity balance.

How is the decedent's 2017 RMD calculated? Would his remaining 2017 annuity payments have to be paid to the beneficiaries? Would the calculation be based as if it was a non-annuitized IRA & divide his 12/31/16 balance by the appropriate life expectancy factor & net his 2017 annuity payments?

Once the decedent's 2017 RMD is distributed from the IRA, can his beneficiaries rollover the remaining balance to separate inherited IRAs? Would the remaining balance be considered not an Eligible Rollover Distribution because it would be considered as one in a series of substantially equal periodic payments which would not permit rollovers to inherited IRAs.