death and the single owner

[AlbanyConsultant]

D, the 100% owner of an S-corp, passed away in 2018.  Ownership of the business passed to D's two sons who worked there (and were already participants) 50/50, and they also happened to be his 50/50 beneficiaries.  D was in RMD payment status, so we've been continuing to calculate his RMD each year and splitting it between the two sons.

Since D passed away pre-SECURE, are there any timing issues I need to worry about for the distribution of D's entire balance?  The post-PPA plan document says that the beneficiaries "may" elect the 5-year rule.

Thanks.

[Artie M]

You state what the post-PPA plan document.  Is that the document that was in effect when the participant dies?  What did it provide as the general rule?  If it provides the "typical" rules for pre-SECURE Act, since the participant died after his RBD, the participants remaining 2018 RMD had to be distributed if not already taken before death and beginning in 2019, each son could take distributions over his own single life expectancy (ie. stretch IRA), using each beneficiary's age under the appropriate table if the account was timely divided into separate inherited accounts by the end of 2019.  If separate accounts were not established by then, the beneficiaries usually would use the life expectance of the older beneficiary.   Under the old rules, the sons are not required to empty the account within 5 or 10 years.   Again, this is assuming the plan provides the typical rules, the plan document could have imposed a faster payout as many employers required a 5-year lump payment or even immediate distribution even though the tax law permitted stretch treatment.  If the assets were rolled into inherited IRAs and stretch treatment was properly established, the life expectancy rules should govern.  Noting that if the separate inherited accounts were not established by December 31, 2019, then the payout period for the beneficiaries is permanently determined using the life expectancy of the oldest beneficiary.   This doesn't affect ownership, the two beneficiaries still each own their separate economic shares but if the deadline was missed, it would affect the RMD divisor (s).  So after the deadline the accounts can still later be physically divided but the inherited accounts would use the older beneficiary’s life expectancy factor.  See Treas. Reg. §1.401(a)(9)-8, Q&A-2, etc.

This is basically from recollection (though I did look up the cite to get some comfort) so you need to research this for yourself.