1. Thanks, interesting and viofrmatine.I am considering to leave IRA to trust to support my spouse if she survives me and then give it to my daughter. I am not too concerned about distribution rate as long as MRD is not more than the support for my wife.

  2. My situation is that the estate is the ‘default’ beneficiary. We were initially led to believe that the custodian would cooperate and substitute myself and the other ‘beny’ for the estate since we are designated in the will. Then they change their mind or we got a different rep. Now, they just want to distribute on the life exp. (17 years!) They had the ‘gall’ to say it was an accounting problem.
    So what is the ‘trick’ to get them to cooperate?

  3. In your article on IRA TAx Planning-Trust or Estate as Beneficiary. you cite PLR 2005-2004. I was unable to find that Ruling. Can you confirm the number or what the result was in the case. Thanks.

    • The cite in the article is correct. You left out a zero in the citation you are using for your search.

  4. If a trust is the beneficiary of the IRA, and the RMD (or more) is paid annually to a beneficiary of the trust, does the trust pay the taxes or does the individual receiving the RMD pay the taxes?

    • The beneficiary pays the taxes. In general, distributions by a trust “carry out” the income of the trust (known as “distributable net income,” or “DNI”) to the beneficiaries. Thus, so long as distributions equal or exceed the trust’s income, no tax is paid by the trust. Distributions of principal usually do not carry out DNI; however, the Internal Revenue Code includes IRA distributions in DNI.

      • Could you cite the code section for your last point?
        IRA distributions/payment directly to an estate or trust is distributable net income….
        Also, where one-half of the trust is left to charity and the trustee powers permit non-pro rata distributions, what do you think of paying/distributing the IRA-DNI (and taxable portion of commercial annuity proceeds) to the charities in one year and the other non-IRD assets out in the next (1041) tax year?… I work for a charity and suggested this to the attorney for an estate/trust and she thought she had read that IRA proceeds can not be distributed as DNI… Thanks.

        • Dave,

          I am not sure what “last point” you are referring to. An IRA distribution is DNI. See IRC 643(c) and Treas. Reg. 1.663(c)-5, Example 6.

          In your example, I think both non-pro rata distributions can be made in the same year.


  5. My situation is that no beneficiaries were named in multiple traditional IRAs (one bank only, as custodian), so that the estate is beneficiary by default. Multiple beneficiaries are named in Will’s residuary clause at varying percentages. What is the proper way to title the IRAs collectively (assuming that we combine the multiple IRAs into one inherited IRA)? Is each of the following appropriate: 1. John Doe IRA Deceased Jan 1, 2013 FBO the estate of John Doe Deceased, James Roe, executor, as beneficiary; or 2. The estate of John Doe Deceased, James Roe, executor, as beneficiary of John Doe, traditional IRA.
    The custodian bank seems reluctant to keep the deceased owner’s name on the account. A representative from the bank informed me that it is necessary to “transfer the IRA into the name of the beneficiary”. My concern is that if the custodian bank puts the IRA in the estate’s name (as the owner) the IRS may treat this as a prohibited roller and as a taxable distribution.
    Thank you.

    • Kal,

      I have been involved in a number of these.

      I recommend that the executor sign an assignment that transfers its beneficial interest in the IRAs to the beneficiaries named in the will based on their respective percentages. The bank will then set up separate “inherited IRA” (sometimes known as “decedent IRA”) accounts for each of the individuals. The RMD for each account will be based on the decedent’s remaining life expectancy, not the life expectancy of the beneficiaries. Every bank has a slightly different way of titling inherited IRAs, so I would not agonize on the exact words the bank uses. Generally, it should be something like “John Smith, deceased, for the benefit of Joseph Smith.” The important part is to get confirmation from the bank that the funds will end up in inherited IRAs, and will not be paid to the estate. Second, the bank should be able to reassure you that they will not be issuing a 1099 showing a taxable distribution. This is sometimes easier said than done, since banks can be difficult.


  6. Dave,

    My mother passed away this year without beneficiaries on one of her IRAs at the age of 74. The will leaves everything to me and my 2 brothers. I am the administrator of her estate and I work at the financial institution where she had her IRA. My understanding of the article you posted on 11/23/11 is that we can set up inherited IRAs for myself and both of my brothers and take distributions over what would have been the remaining life expectancy of my mother. To complicate matters more, she had 2 other IRAs with designated beneficiaries (myself and my brothers). Thank you.

    • Barry,

      Your analysis is correct. The only potential obstacle is getting the financial institution to cooperate. Hopefully, you have some “pull.”


  7. Dave,

    A couple of follow up questions. One of my mother’s IRAs had me as sole beneficiary. Can I disclaim 2/3 of this IRA to give my 2 brothers equal shares? I believe the disclaimed amount would go through the estate. Would I need an attorney to draft the document? Thank you.


    • Barry,

      The short answer is probably.

      In general, one who disclaims is treated as having predeceased the event instigating the disclaimer. Our initial focus should be the account agreement. Specifically, does it provide that the share allocable to a predeceased named beneficiary goes to his descendants, or to the IRA owner’s estate? An attorney can easily draw up a disclaimer, but you should ask the brokerage account if it insists that its preprinted form be used. Assuming the default beneficiary is the estate, you can disclaim 2/3 from the probate estate, although your descendants would probably have to disclaim too. (I am assuming that the will allocates your share to your descendants if you predecease your mother.) Your siblings would have to withdraw their inherited IRAs based on your mother’s remaining life expectancy.


  8. I am dealing with an IRA where the estate was the beneficiary due to there being no named beneficiary. The IRA provider is Merrill Edge. I’ve told them that I want to transfer the IRA to the beneficiaries of the estate, in-tact. They’re saying that the way to do this is to “bypass” the estate, though I can’t get them to explain what that means. My questions are: 1) have you had any success dealing with Merrill Edge and getting them to agree to a plan-to-plan transfer out of an estate to the beneficiaries of the estate. 2) Any guesses as to what they might be meaning when they say they’ll need to “bypass” the estate to achieve the transfer that I’m asking for. 3) Is there any specific language that helps to communicate the request to the bank so that they can clearly say if their policies allow it? I can’t tell if the person I’m talking to at Merrill Edge understands what I’m asking for or not.

    • Mike,

      I have not worked with Merrill Edge, and have no contacts there.

      I like their decription of “bypassing the estate,” since that is also how I envision the requested transaction. When the dust settles, the IRAs will be titled “John Smith, deceased for the benefit of Jimmy Smith.” The estate is not mentioned anywhere, which is what we want. In my communications with brokerage houses, I emphasize what I don’t want to happen. In particular, I do not want the brokerage house to write a check payable to the estate, and I do not want the brokerage house to issue a 1099 to the estate. If they can avoid these dead ends, chances are they will do the right thing.

      Your inquiry to Merrill Edge should be: When the dust settles, will the individuals who are named as beneficiaries under the will end up with separate inherited IRA accounts? If they say “yes,” you are on the right track. I also tell them that the estate is assigning its beneficial interest in the IRA to the beneficiaries, so that we end up with the same result as if the beneficiaries of the estate had been named as beneficiaries of the IRA.


  9. Dave, I am dealing with MetLife, my brother died at 50 years old with a MetLife IRA where the estate is the named beneficiary.(Why the advisor at Capitol One who sold him the IRA allowed this I don’t know) His will, made the same day as the beneficiary change, leaves the IRA in trust split equally between his wife & daughter. I am the executor of the trusts. Metlife will only allow one lump sum distribution to the estate within 5 years from date of death. I tried to get them to transfer trustee to trustee to Fidelity inherited IRA trusts, one for his wife and one for his daughter. They sent me a letter stating any 1035 exchange must be a new contract for the benefit of the estate. My questions are: How does this 1035 rules apply? Is there any chance to through the IRS or court to correct the beneficiary error, the will made the same day establishes the trust and names the Metlife contract?

    • Joseph,

      Met Life is correct that the five-year rule applies if the IRA owner dies (with the estate as beneficiary) prior to the age 70 1/2 required beginning date. You can delay making the distribution until the last day of the fifth year (after the year of death), but not beyond that date. I don’t know why Met Life is insisting that everything has to be taken in one distribution, rather than perhaps five. I have not tried to use Section 1035 exchanges in this context, and believe Section 1035 is limited to life insurance.


  10. My father’s IRA was left to his estate. In 2013 the entire amount (approx. 100K) was distributed to the estate and the executor has received a 1099R for 2013. I’m afraid this is now all taxable since the executor did not distribute any of the money during 2013. Am I right that it is all taxable?

    • Dan,

      If the estate’s income tax return is based on a calendar year, the executor actually had until February 14, 2014 (65 days after the end of the year) to distribute funds and pass the taxable income out to the beneficiaries. See IRC 663(b)(1). But if no distributions were made by February 14, the entire IRA distribution is taxed to the estate at very high marginal rates.

      There is one escape hatch. If the executor files the estate’s income tax return on a fiscal year, he still may have time to make the distributions. For example, if your father died on July 15, 2013, your executor can choose 6/30/2014 as the fiscal year end and buy some more time.


  11. Dave,
    Great article and discussion!
    My mother named a Designated Beneficiary Trust for me as beneficiary of an IRA account. I am 61 and the trust provides that any beneficiary attaining 45 may withdraw all or any portion of the trust. I want to utilize the stretch out payments, but as simply as possible. The IRA custodian is UBS and they seem agreeable to changing the IRA account to me as an inherited IRA from my mother and using my life expectancy for RMD calculations.
    If UBS will set up the account as an inherited IRA, can I rely on this?
    As I said, I want to use the stretch out provisions but keep the administration and tax filing requirements to a minimum.

    • Rick,

      The short answer is “yes.” You can rely on the inherited IRA account. You are very fortunate that UBS is cooperating on transferring the trusts’s interest in the IRA to your personal inherited IRA account, which avoids having to file trust income tax returns every year. A number of brokerage houses are incredibly inflexible on this type of thing, and incredulously insist that the beneficiary is stuck with the trust forever.


  12. My situation is similar to Dan’s above. My father passed away in 2013 and left his IRA to the estate. In the will I was the beneficiary, my brother is the executor. My brother had the management company cash in the IRA and gave me the check to deposit with the caveat that I needed to claim it on my taxes. I haven’t received a 1099, I called the company and they said it should have gone to my brother as executor. I’m trying to do my taxes, but don’t know how to claim the money. The management company told him it would be better for me to claim it as income as it would be taxed at my rate rather than the higher estate rate. I’ve asked my brother about the 1099, even if he has it would it not be in the name of the estate and not be usable on my tax return?

    • Lane,

      I agree that your brother has made a mess of things. You have not received the 1099 since it was issued to the estate. The proceeds are taxed to the estate, and the estate’s taxable income (commonly known as DNI) spills out to your personal return only if the distribution is made in the final taxable year of the estate. If, for example, the first taxable year of the estate began on September 9, 2012 and ended August 30, 2013, and the IRA was paid to you in August of 2013, the proceeds would be taxed solely to the estate and none would be taxed to you. I am guessing / hoping that the proceeds were distributed to you in the last taxable year of the estate, so that the income carries out to your 1040. Assuming it does, you should get a K-1 from the estate’s Form 1041 showing the pass-through income. The K-1 amount will be net of all estate expenses, and should be less than the IRA proceeds. Your brother took a short cut and made a mess.


  13. Decedent passed at 83 with $400k IRA and estate as beneficiary. He was married at the time and his wife was sole beneficiary under the Will. Is there any instances where under a PLR she is then able to treat the decedent IRA as her own IRA and use her own life expectancy as RMD. I’ve heard some custodians will oblige with an indemnifcation letter – e.g Vanguard. But I reallly want to know what PLR (if any) allows the surviving spouse to change to the more favorable RMD.

  14. Dave,

    Your column is really very insightful.

    My brother died last year intestate. My sister is the administrator and sole beneficiary of his estate (my elderly mother and I have disclaimed any rights
    to the estate assets). Included in my brother’s assets is an IRA with a brokerage
    firm, with no named beneficiary. The brokerage firm’s policy for an IRA with no named beneficiary is to have it go to the estate. We are trying to convince them to simply transfer the IRA to my sister in the form of an inherited IRA, but they are pushing back that it has to go to the estate. I would think it would be in everyone’s best interest to do this–especially as it is my sister’s intent to have the inherited IRA stay at their brokerage firm. Is there a compelling argument that you can suggest that would allow the brokerage firm to feel comfortable with simply transferring the assets to the inherited IRA?

    Many thanks,

    • Marc,

      When a brokerage house says “no,” trying to convince it otherwise is usually futile. (An exception is sometimes available for customers who have a huge account that the broker does not want to lose.) But there is a solution. Just move the account to Fidelity or Vanguard, which will cooperate. When the dust settles, you sister can always transfer her inherited IRA account back to where it is now. The RMD will be your brother’s remaining life expectancy.


  15. I am the executrix of an estate with 18 heirs and 50,000 of our 171,000 is in an IRA. She was ninety-one. I cannot do the distribution except in a lump sum and I am having trouble finding someone to give me the exact answer to what needs to be done. Help

    • Belinda,

      The first question is whether the beneficiary of the IRA is “the estate,” or the 18 individuals. If the estate is the beneficiary, you will instruct the IRA custodian to issue a $50,000 check to the estate. But you should coordinate this with the distributions from the estate to the individuals (i.e., make sure the IRA distribution and the distributions to beneficiaries are in the same tax year) so that a Section 661 distribution deduction is allowed to the estate, thereby causing the distributable net income to be taxed to the individuals.


  16. Dave, Thank You for your many helpful comments to others’ prior posts and questions … I am the Executor of my godmother’s estate; she died recently at 89 and, regrettably, I have just discovered she designated her estate as the beneficiary of her mid-six-figure traditional IRA. Her will designates 11 parties, including 5 charities, to receive $-bequests in fixed $-amounts, and then me as the sole beneficiary of her Residuary Estate. Her will explicitly states all designated beneficiaries are to pay their fair $-share of the income and death taxes (and administrative costs) payable by the estate, which are to be proportionately allocated by her Executor … Finally, her non-IRA liquid $-assets total more than enough to satisfy the $-distributions to the 11 beneficiaries … Can you help me please to identify my distribution options, if any, that may be preferable to simply funding the 11 $-bequests using the non-IRA funds? … I have just set up an Inherited IRA account but have not yet commenced with any transfers or distributions … The options to use the original IRA assets to make beneficiary distributions are unclear to me, and I would of course prefer to minimize my own and the estate’s tax liability by utilizing the wisest distribution strategy available to me … THANK YOU for any advice or guidance you might provide; your help is greatly appreciated … George H

    • George,

      There are no good options.

      The best possible result is convincing the IRA custodian to transfer the estate’s beneficial interest in the IRA to an inherited IRA for you. This is always a fight. Another problem is that you are stuck with the RMD of your godmother, which is only about six years. Another issue is that this strategy shifts all of the embedded income taxes to you. Unless a taxable IRA distribution is made to the estate, there are no income taxes to apportion to the takers of the fixed dollar gifts. And if you take a taxable distribution, most of the income taxes will be allocated to you as the residuary beneficiary.

      The estate probably has a malpractice claim against the godmother’s attorney. Had the attorney advised your godmother to designate an individual as beneficiary of the IRA, the individual could have taken the funds over the individual’s life expectancy. Under the present plan, you will have a lengthy fight to convince the IRA custodian to distribute the estate’s beneficial interest in the IRA to you — intact — as an inherited IRA, and then you still must withdraw the funds over six years.


  17. Mother dies has an IRA in the amount of 800,000.00 with a residuary trust as the designated beneficiary. She has three adult children as the beneficiary of the trust. The provider will only issue the check to the trust. Anything they can to to avoid taxes..

    • Gary,

      The answer is yes.

      First, move the IRA to a more cooperative custodian, perhaps Fidelity or Vanguard.

      Second, set up inherited IRA accounts for the three individuals.

      Third, provide written instructions asking the custodian to transfer 1/3 of the trust’s beneficial interest in the IRA to each of the three accounts. Each of the children can then withdraw the IRA over the remaining life expectancy of the oldest child.


  18. My father died at 88 years old with a will naming myself and two siblings as heirs since my mother passed away a year earlier. I was named personal representative in the will. I did my research and found his estate qualifies for Oregon’s Small Estate process. I filed the affidavit and I am working through the process except for one bank IRA worth ~30k. The bank is demanding “Letters of Testamentary” in order to transfer the the IRA to the “estate”. I have tried to explain to them that the Small Estate procedure does not issue Letters of Testamentary” but they are still demanding them, I have also tried to explain that there is no “Estate” for them to distribute to. They are saying that since my father didn’t update his IRA beneficiary to his children after my mother died the distribution has to be to the estate. I understand the tax issue and ask that they distribute the IRA in thirds to each of his children and report the distribution against our SSN’s. The value is small enough that a incremental distribution isn’t going to make much difference in the taxes owed. Any advice on how to get the bank beyond the Letters of Testamentary”?

    • Todd,

      You may need to transfer the IRA to a different bank. A small estate affidavit should be satisfactory, and it would be unconscionable for the bank to insist on letters testamentary of a full probate. A certified copy of the filed small estate affidavit is all that is required. I suspect the person at the bank is inexperienced. Having said that, I think the proper payee is the estate (or the small estate affiant), not the three individuals. Since the will has not been probated / proven, the bank has no assurance that the three children are indeed the beneficiaries.


      • Dave,
        Thank you for your response and all of your responses to the other questions. You are providing a great informational forum here.
        I have two follow-up questions based on your answer.
        1) I don’t see any less authority in the will of a “Small Estate” versus a full probate. My fathers will was filed as part of the “Small Estate Affidavit” and was approved by the Judge. Since the will could be challenged in either case, small estate or full probate, how is the will any less “official” with a small estate.
        2) My reasoning in asking for the distribution to the heirs listed on the small estate affidavit was for tax purposes. If the bank distributes the funds to myself as the “estate” since there isn’t an estate as in the full probate process, then the tax liability will be reported solely against my SSN. As the “estate” representative per ORS114.545.1.f, I have the authority to distribute assets prior to 4 month closing so long as the heirs understand their liability back to the estate to the limit of the amount received. How else should the tax liability be spread to my two siblings?

        • Todd,

          You can probably spread the tax liability by getting an EIN for the estate and reporting the income on a 1041. Each beneficiary will be provided a K-1 to report 1/3 of the income. If you provide the bank the EIN, they should be willing to tax it to that number.


  19. Dave,

    My father passed away and left a 401k plan for $130k. There were no beneficiaries listed on this plan. The policy of the brokerage that held the account was an immediate check to the estate less 10% tax. I have not cashed the check to the estate since I am trying to figure out the best way to handle it. There are only 2 possible beneficiaries, myself and my brother. Is there any way to do an indirect transfer into an inhereted IRA at this point, or do we just do distributions and pay the taxes. My father passed 12/3/13 so I believe all of this has to be done before Dec. (not too sure)

    • Marie,

      It is possible for the executor of the probate estate to transfer the estate’s beneficial interest in the IRA (intact) to inherited IRA accounts for the beneficiaries of your father’s estate. They would have to withdraw the funds over your father’s remaining life expectancy. Many brokerage houses will not cooperate on something like this, so you may have to move the account to a more user friendly brokerage. In all events, don’t cash the check.


      • Dave,

        I have tried to work with the brokerage group and according to the agreement with the employer the estate account is expensed immediately. The will not do anything other than a check. Can I take the check to a brokerage?

  20. Dear Dave,
    I am the trustee of my brothers trust. He died at age 71 in Sept 2014. He had an IRA with Morgan Stanley $110K. The trust was named as the Beneficiary of the IRA. The Beneficiaries of the Trust are my sister and myself ages 64 and 62 respectively.
    We have reasons to keep the Trust as an instrument to protect liability on some notes owned by the trust ie. We don’t want to terminate the trust. I will keep my portion of any assets at Morgan Stanley. My sister wants to move her portion to Fidelity. Morgan Stanley has told us that in order to create Inheritance IRA’s for my sister and myself that:The Trustee hereby (A) certifies that (i) the Trust is a valid trust under state law; (ii) the Trust is irrevocable;(iii) the Trust beneficiaries with respect to the Trust’s interest in the decedent’s IRA referenced above are identifiable from the Trust instrument; and (iv) required documentation has been timely provided to Morgan Stanley, and (B) represents that the Trust is in fact terminating and the Trustee must distribute or transfer the Trust’s assets.

    The issue of contention is “(B) the Trust is in fact terminating” which Fidelity says is incorrect and Morgan Stanley said is required.

    The estate value in Stocks, bank accounts and iis $1.2 Million plus two 30 year notes secured by deeds of trust at 5.75% amounting to $350,000.00. Keeping the notes in the Trust and paying out the monthly income is our plan because the Trust provides a liability layer for the notes, according to council.

    What is your position on the wording regarding Morgan Stanley stating the Trust Must Be Terminating?

    Thank You

    • Steve,

      Conceptually, the trust is distributing its beneficial interest in the IRA (intact) to you and your sister. This can be accomplished without terminating the trust with respect to its other assets. One could say that the trust is terminating with respect to the IRA (but nothing else), but the more common expression is that the trust is making a partial distribution.


  21. David,

    Situtation is this- Mother died in August 2014 Had IRA with no beneficiaries designated. So it effectively becomes Estate IRA as I understand it. Her Estate in excess of 5.34mm so there will be tax due in May of 2015. Had some issues with trust and will got done last minute-poor planning on her part. Custodian not recognizing designation of trust as bene or anything else. Are we stuck with this as Estate IRA -had to go probate on Sep30.
    Can we still request designation of benficiaries under Court docs filed prior to her death. granted filed just before.

    • Joe,

      The tax laws allow the estate to transfer its beneficial interest in the IRA (intact) to the trust, and the trust can in turn transfer its beneficial interest in the IRA (intact) to the beneficiaries. Whoever ends up with the inherited IRA is stuck with the decedent’s remaining life expectancy.

      Now for the hard part. Many custodians will not cooperate. Fidelity and Vanguard usually will. You will probably have to move the IRA if the custodian is refusing to cooperate, which is common.


  22. Dave,

    My father passed away in Dec 2013, he did not have any beneficiaries listed, and therefore according to the terms of his shared savings plan, the entire account was immediately disbursed and a check was cut. I tried to work with the firm however they stated that this was the rules of the plan and they are not moving on this position. I have not deposited the check because I am wondering if I have any options. Since the check was issued this year and the Estate Tax Year is Dec to Nov based on his passing, I believe that if I deposit the check I have to distrubute the amount to myself and my brother before the end of Nov. for it to be considered a pass through. Any recommendations?

  23. Dave,

    The information you provided is very helpfull. I have a question and hope you will provide some insights?.

    My uncle created a living trust and put me as the trustee.After his death. There are four beneficiaries to the trust property.An IRA worth $100K was encashed and distributed among the beneficiaries.What happend is that I claimed my self as beneficiary to the IRA , got the check which is deposited to my bank and then I distributed it equally to the beneficiaries. 25 % was with holded and they are going to issue a 1099 in my name. This will put me in higher tax bracket this year.

    How can I pass the above transaction to the trust ?. Also how the tax withholded is to be treated for distribution ?.

    Looking for your valuble advice

    Thank you

    Bowen Ellis

    • Bowen,

      Who were the named beneficiaries on your uncle’s IRA? The trust? The four individuals?

      That is the starting point in trying to fix things.


  24. Do you pay Oregon estate tax on an inherited Ira or 401k, for which you are the beneficiary? Same question for a variable Vanguard annuity?
    Thanks for the helpful info.

    • Gianfranco,

      The answer is yes. You are free to withdraw the entire inherited IRA at any time, so the account is part of your estate. Dave

  25. Dave ,

    Sorry I was out of town so the delay in reply. IRA did not have a beneficiary named. After the death the IRA has to come to the trust and be distributed among the children which I did.Instead of receiving money to the Trust I wrongly claimed the it on my name , put the money in my bank , then distributed among the children.Now The company is going to issue a 1099 in my name which will increase my taxable income!

    Thank you


  26. Normal IRA distribution to a named beneficiary does not require probate. If I name the sole contingency beneficiary of my IRA account (standard assets like common stock) as “Trustee named in my will date March 10, 2013”, Trustee will distribute the asset according my direction. Do it need to go through probate process ?

    This is not the same as turning over the asset to the estate but just leverage the direction of the will (as an beneficiary) to distribute the asset.

    • Dear Mr. Vinent:

      I frequently name testamentary trusts as the beneficiary of an IRA. For example, this is usually the best choice when there are small children. My experience with post death administration of this type of beneficiary designation is modest because the contingency mandating a testamentary trust under a will never occurred. In all events, the necessity of a probate probably depends on the IRA custodian. An IRA custodian has a legitimate concern that a probate is the only means of ensuring that the will is genuine and not superseded. Having said that, I suspect some custodians will insist on a probate and others will not. I would be interested in learning how IRA custodians are responding.


  27. Hello! My uncle died without naming beneficiaries and the appointed estate administrator is requesting the Bank (in NJ) where the IRA resides to be paid to the “estate of…” and the bank is saying they need a tax waiver. Is that correct?

  28. Dave,

    I’m the trustee of my father’s trust and he had a 401K that we moved into a beneficiary IRA. There are 4 children that these funds will get distributed to. I’ve opened up a trust checking account to move the entire IRA funds into so that I may disperse the proceeds to all 4 of us. Do I request to have Federal and state taxes taken out of the IRA when it is moved into the trust checking account? How do I split out the 1099 for tax purposes? I don’t want to be responsible for claiming the full amount that gets distributed from the trust checking account


    • Mike,

      When your father dies, you should set up four inherited IRA accounts and have the custodian transfer 1/4 of the IRA (intact) to each account. The children can then withdraw the IRA over their life expectancy and defer the tax.

      Disbursing the IRA to a checking account causes all of it to be taxed at once and is a terrible idea. Your siblings will not be happy if you go this route, especially if they hear that their respective taxes could have easily been deferred.


  29. 86 yo mother passed and left 2 Iras to estate. As personal rep I am setting up a special needs trust for my sister to avoid loss of SSI and medicaid. We will split estate 50/50. One IRA has already sent a 14000 check to the estate and Schwab has placed 44000 in an inherited IRA. If this goes to the estate and then the probate court allows my sister’s half to go into her trust, will the trust get taxed or the estate? Do I have any good options.

    • Stan,

      As a threshold comment, your mother was not well advised. “Estate” is usually the worst possible choice when the desired beneficiaries are the participant’s children.

      If you cash the $14k check payable to the estate, the full $14k will be taxed to the estate. Although custodians frequently refuse to cooperate, an estate’s beneficial interest in an IRA can be transferred intact to the beneficiaries of the estate via inherited IRAs. I don’t know if this is worthwhile for the $14k IRA, especially since a check has been written. For the $44k IRA, the PR should send a letter to the custodian requesting that half of the IRA be transferred intact to two inherited IRA accounts, one for your sister’s trust and one for you. You should obtain your sister’s signature on the letter. The custodian may or may not require a court order. Custodians usually reply that it is impossible to transfer an estate’s beneficial interest in an IRA without triggering a taxable event. This is incorrect.


      • Dave – I appreciate your thoughtful replies to these posted questions. I was wondering if you could answer two stretch IRA-related questions of my own. But first some background. I recently inherited an IRA from my mother, who passed away at 73, a couple of years after her RMDs began. The designated beneficiary of this IRA was a see-through trust, which in turn identified my brother and me as beneficiaries. The purpose of this arrangement was to protect the IRA from possible creditors and to allow us to stretch out the RMD’s over the course of our IRS-calculated lifetime, indexed to me as the older brother. Now, I understand that the trust is taxed directly, not the beneficiaries. Thus, trust tax rates, and not individual rates, are used for taxation purposes. If the trust makes over approx. $12,000/year, which it may, it is taxed at a 39% rate. If I inherited the IRA directly, however, I would be subject only to a 15% income tax rate on the RMDs. My questions:

        1. Will the trust tax rate of 39% seriously reduce the growth of my IRA relative to the rate that I would have paid (15%) if I had been the designated beneficiary of the IRA? Might the high trust tax rate actually negate the tax deferral benefits of the stretch feature?

        2. I am both trustee and beneficiary of this IRA trust, which is irrevocable. If the tax bracket of the trust significantly threatens its growth rate relative to the rate I would have paid if I had been the IRA’s direct beneficiary, may I choose to break the trust – as both trustee and beneficiary, who would stop me? – and continue to stretch out my RMDs and pay tax rates as if I were the designated beneficiary of the IRA (and not the trust)? Or, once the IRA is removed from the trust, must I distribute it to myself within the usual five-year period (or possibly less)?

        Thank you for your reply.

        • Stefan,

          If the trust distributes its income every year, a distribution deduction is allowed and the income would be taxed on your 1040. Is there a reason the trust has been accumulating the income and making no distributions? That is unusual and probably imprudent.

          The trustee can assign to the beneficiaries the trust’s beneficial interest in the IRAs. Each beneficiary would then have a personal inherited IRA with an RMD based on the life expectancy of the oldest son. There is no one who will stop you from breaking the trust, certainly not the police. Two potential problems. Your brother can sue you down the road if he squanders his IRA that would otherwise be protected by a trust that should have been continued. Second, the IRA custodian may refuse to transfer the beneficial interests in the IRA without a court order. If the IRA custodian is willing to cooperate, you can probably just prepare an assignment of beneficial interests, get it signed by the trustees and beneficiaries, and then present it to the custodian.


          • Dave,

            Thanks for your reply. I was unclear about the RMDs. The trust has not begun to make distributions because my mother, whose IRA my brother and I are inheriting, passed away only a few weeks ago. When the RMDs begin, which I believe is next calendar year (could be wrong here), they will not be accumulating in the trust.

            Also, I should have mentioned that my brother and I are co-trustees; whatever course of action we choose to take will need to be agreed upon mutually. Thus, I won’t be vulnerable to the sort of litigation you mention.

            One question that I was asking concerns our tax liability. Thanks for clarifying that the RMD can be counted as a deduction against the trust’s income, leaving us only with personal income tax to pay on the RMD itself. I infer, therefore, that only accumulation trusts are directly taxed. A conduit trust, which ours apparently is, pays no taxes because the RMDs, which are forced out, write them off.

            It now seems to me that my brother and I will actually have no reason to beak the trust in order to reap any supposed tax advantages of simply owning the IRAs directly, i.e. no possibility of double-taxation – trust income tax PLUS beneficiary/income tax of the RMD. At least, this is how the situation looks to me, based on what you said about the RMD deduction. Nevertheless, it consoles me to learn from you that, were it necessary, the trust could broken and the beneficial interests transferred. I hope that this would not blow out the stretch option.


  30. Dear Mr. Streicher:

    My situation is somewhat similar to the above post. A Trust is the named beneficiary of a 80+ year old IRA account holder who recently died, and there is one primary beneficiary of the Trust, with named and identified remaindermen. The estate attorney said this Trust qualifies as an IRA designated beneficiary, but the Trust document provides that the Trust “may distribute” to the Trust beneficiary a percent of the value of the principal/income of the Ttrust assets, which include investment accounts as well as retirement accounts. Trust distributions are based on certain costs of the Trust beneficiary, but the value of these costs will be less than the value of the full RMD from the IRA. There is no obligation under the Trust document for the Trustee to distribute the full RMD to the Trust beneficiary, and the Trust beneficiary has separate assets. Although the Trust will receive the full RMD each year, its distribution of the full RMD to the Trust beneficiary would deplete the value of the Trust assets, given that the IRA is one of the most valuable assets of the Trust. The Trustee is concerned about preserving Trust value for named remaindermen.

    My question is the following: Where the full RMD is distributed by the IRA to the Trust, and the Trust distributes to the Trust beneficiary only a portion of this full RMD, what income tax does the Trust pay with respect to the RMD? Would the Trust only pay this tax on the amount accumulated but not the amount dispersed to the Trust beneficiary? Would there be any offset or deduction from Trust income for RMD amounts dispersed from the Trust to the Trust beneficiary? Beyond the income tax assessment, would there be any additional penalty for the Trust retaining a portion of RMD funds?

    Thank you so much for your insight.


    • Sofia,

      In general, all IRA distributions are taxed to the trust, except that the trust is allowed a deduction equal to the amount distributed to the beneficiary. Thus, if the trust receives $25k in income and distributes only $20k, the trust will pay income taxes on $5k. The beneficiary will receive a K-1 indicating that he must report $20k on his personal return. In other words, the income is taxed only once, either at the trust level or the beneficiary level, depending on the amount of distributions. There is no penalty to the trust for accumulating part of the IRA distribution.


  31. My father designated a trust as the beneficiary of his IRA. The trust was drafted by an estate planning attorney naming my mother as the income beneficiary and me and my siblings as the beneficiaries after she passes. Dad died in 2014, so the RMD for that year was based on his life expectancy using the Uniform Life Table. The brokerage firm is now telling us that for 2015, the RMD must be calculated based on my mother’s life expectancy using the Single Life Table.

    Is this correct?

    • Sharon,

      The answer is “yes.” And after your mom dies, you and your siblings may take the remainder over your mom’s remaining life expectancy. A trust is seldom used (when there is a surviving spouse) except for second marriages. Absent a trust, the surviving spouse could roll over the IRA and name any beneficiaries she chooses. In most marriages, the risk that the spouse might disinherit the children is very small, so the spouse is named as outright beneficiary.


  32. My situation is my husband passed in early 2015. His trust read that the IRA’s beneficiaries were his 4 children from a previous marriage with the spouse having the right to use the money and then it would pass to the children when she passes.
    Is spouse considered a beneficiary? I am being told that 4 seperate IRA’s for the kids should be set up and they will be responsible for the taxes due on withdrawls and or RMD’s, but they would receive none of the money. Spouse would be using per trust.
    Other option was that RMD’s go to trust and then the trust pays the higher taxes and the money is K-1 to spouse.

    Is this the only options?


    • Dennis,

      There is a critical fact missing from your narrative: Who is the designated beneficiary of the IRA?


      • The 4 children are stated beneficiaries. In the trust it does not list by name or term spouse as a beneficiary, but states the wife will be able to use money and assets to keep in same life style. All income and money earned from contents of his estate will go into the trust. The plan is to withdraw all the income each year so the trust will have no tax liability. In doing so it is my understanding that as the kids are the beneficiaries and liable for tax on this income as they are the beneficiaries and that’s who would be sent the K-1’s from the estates annual return.

        • If the trust distributes all income to the wife, her K-1 (not the children’s K-1s) will report a corresponding amount as taxable income. Whoever receives the income is responsible for the tax. Stated differently, if the wife receives the income, the children are not liable for the tax.

  33. Thanks for replying to a previous post of mine. Perhaps you’d be willing to respond to a second.

    My brother and I inherited an IRA from our recently deceased mother, to be split between us. This IRA was placed into an irrevocable “see-through” trust, which was designated as the IRA’s beneficiary. My brother and I are the trust’s beneficiaries, as well as its co-trustees.

    The trust has not formally transferred to us, but is in the process of doing so. While reading the trust document about a month ago, I had an unsettling surprise: I learned that the trust inherits per stirpes. Although my mother openly discussed the terms of this trust before she died, she never mentioned the per stirpes clause.

    This clause disconcerts me because it means that, should I die before my wife, my IRA assets go to my brother (we have no kids). If he is not alive, these assets go to his son. Likewise, should something happen to my brother and his son, his IRA assets would skip his wife and come to me. Since my brother and I regarded the IRA trust as a central part of our retirement plans, we’re distressed to learn that they don’t include our wives should we pre-decease them.

    We also agree that it is hard to believe that our mother would have approved this possible outcome given her positive relationship with our wives and her disapproval of our deceased grandmother’s inclusion of a per stirpes clause in her will. This clause excludes my grandmother’s other daughter-in-law from inheriting any portion of a trust which currently benefits this daughter-in-law’s husband, our grandmother’s other son. After he dies, what’s left of the trust assets go to my brother and me. While this advantages her own sons, my mother still condemned it as a spiteful move, reflecting the bitterness of the relationship between her mother-in-lawyer and her sister-in-law. Could our mother have then intentionally reproduced a similar inheritance scheme, excluding her own daughters-in-laws with whom she had a positive rapport? My brother and I don’t think so, and we wonder if our mother was even aware of the per stirpes feature. In any case, we think that she received poor legal advice.

    My question: Can we change or remove the per stirpes aspect of the trust? I have heard that if all trust beneficiaries and trustees agree to certain changes in a trust, these changes can be effected even if they defy the “expressed” will of the grantor. There is a problem here, however. One of the beneficiaries of the trust, my brother’s son, is a minor and, thus, has no will, legally speaking. Consequently, a consensus among beneficiaries and trustees isn’t possible. It would seem, therefore, that we’d have to wait until my nephew comes of age to make any changes, assuming that he agrees to them. For all we know, he may not agree. Also, he’s very young right now, so we’d have to wait a long time to find out. Is there any other way to change the per stirpes clause?

    Thanks for reading this post and for your thoughts.

  34. An estate attorney told me to set up an irrevocable trust since my mother has dementia & may need to have a Medicaid Protection Trust. She has a couple of IRAs and non-qualifying variable annuities. The lawyer told me to put the annuities in the trust since the govt wont touch the IRAs. I have POA, am the trustee & want to know if I should name the trust as beneficiary? Should I have her take small distributions to help pay for her care? As the trustee will I be hit with a big tax bill in the future?

    • Teri,

      The IRA is protected from creditor claims at your mom’s death even if children (rather than a trust) are named as the death beneficiaries. Naming the trust as death beneficiary does not confer any additional creditor protection benefits.

      If your mother is over 7 1/2 years old, she must take required minimum distributions whether she wants to or not. I don’t know whether Medicare eligibility will be denied unless she spends down her IRA with additional distributions.

      When your mom dies, you will be taxed as you take distributions from the IRA, not all at once.


  35. As many of the others on this site, I am working to settle an Estate where there were nine 401K accounts without beneficiaries listed. There is a will showing the two children are the beneficiaries. There were 2 life insurance policies with the children listed as beneficiaries. The intent was for the children to inherit everything. It was suggested by Charles Schwab to just get a Court Order directing the Custodians to “bypass the estate” and direct the assets to be rolled over into inherited IRAs in the name of the 2 children in equal 50% shares. Have you heard of this? Has this been successful? Any comments or recommendations would be appreciated. I have spoken with a couple lawyers and they have not heard of this. Schwab says they see these court orders on a regular basis.

    • Diane,

      Yes, I have seen this.

      At least in Oregon, it is very simple to incorporate into the order approving the final account a paragraph that says the personal representative will transfer the estate’s interest in the 401(k) accounts to inherited IRA accounts for the beneficiaries in equal shares. Judges will not hesitate to approve such an order provided all interested parties consent. If Schwab is willing to cooperate if you get the order, you are fortunate. Many custodians will refuse.


  36. Hi Dave – thanks for all the great info you supply in your article and follow up posts! I have read every single post, hoping to find an answer to my question, however it has not been covered.
    My situation is similar to many others: Trust as Beneficiary for IRA; IRA custodian has agreed to treat IRA as a “see-through” and now each of 7 beneficiaries has a separate “sub” Inherited-IRA, with the RMD calculation based on eldest beneficiary. While the RMD question has been considered in earlier posts, I have not seen the following question posed: Does the satisfaction of the RMD amount require each sub Inhereted-IRA beneficiary to withdraw the full RMD amount -OR-or just 1/7th share of the annual RMD?
    If only 1/7th share, would it be possible to satisfy the RMD, as long as the annual amounts withdrawn across all 7 accounts is equal or greater than the RMD? How would that RMD be reported in that case? Thanks for any insight you can offer!

    • Jim,

      Good question. The RMD is based on the age of the oldest beneficiary of the trust. Let’s assume this amount is $5,000. I think the question is whether (i) each beneficiary must take $714.29 per year, or (ii) it doesn’t matter what is distributed to any single beneficiary so long as the collective distributions taken by all beneficiaries (as if the accounts are aggregated) are at least $5,000.

      The “bible” for these types of questions is Life and Death Planning for Retirement Benefits, by Natalie Choate. On page 106, Ms. Choate says the result is “unclear.” She goes on to cite authority for both possible answers. She suggests that the Treasury Regulations [1.401(a)(9)-8, A-2(a)(1)] support the position that the “accounts” are aggregated and that pro rata distributions are not mandatory.


  37. I have a question?. I have a revocable trust that is the beneficiary of an IRA and a Non-Qualified Annuity. There are 3 individual’s as the beneficiary of the trust. I want to clarify is the RMD each year now based on the decedents remaining life or the eldest Beneficiary.
    If the beneficiaries are not in need of cash it would be better to extend or stretch the payments of the IRA and the Non-Qualified Annuity.
    These payments then being passed out to the beneficiaries would be taxed at the individual level instead of the trust level.
    Are there any other recommendations or options that would be worth looking at that does not involve closing the IRA and Non-Qualified Annuity.

    • Jeff,

      Naming the revocable trust as beneficiary is a bad choice. The decedent should have named the individuals. In all events, the RMD is based on the life expectancy of the oldest beneficiary.


  38. I have read many of these questions and it brings up a question for myself as the trustee to his trust, how should I handle my deceased fathers (83) IRA w/beneficiary Trust ( disburse assigned percentage to children). Logix banking does not do inheritance IRA. I was suggested by Logix rep to cashout the IRA into the checking and disburse as listed in schedule. Reading your responses you keep bringing up the inheritance IRA. In my fathers trust his wishes would have children roll their funds into their own IRA or 401K. Listed in Trust also states all taxes will be paid by the trust. The bank Logix stated the 5 year rule would be based on the oldest brother 63 life expectency. Question: Why not cash out the IRA $150 pay the taxes from trust and distribute to children. Question: what would the taxes be if IRA was cashed out the year of death? Question: If I set up inheritance IRA 1. eac child would have their own account. 2. can the individual child cash out beyond the RDM amount if they wish? 3. Everyone would pay their own taxes with the inheritance IRA based on how much they pull annually.

    • Vicki,

      Am I correct in assuming that your father’s revocable trust was the named beneficiary of his IRA? In other words, was the trust listed as beneficiary on the beneficiary designation?

      If so, the trust should assign its interest in the IRA — intact — to the children in equal shares. This is neither a distribution nor a taxable event. Each child will have a separate inherited IRA account. The annual minimum distribution is based on the remaining life expectancy of the oldest child, but a child can always take more.

      I don’t know why anyone would want to cash out the IRA now, and accelerate the income tax. Logix is telling you to cash out the IRA because they either don’t know the tax laws or have arbitrarily limited the options they will implement on behalf of clients.


  39. Hi Dave,

    Good article / post, and I’m happy to see it has legs.

    I’m in the situation where “the estate” is the beneficiary of an IRA.

    [An aside, but the decedent moved the IRA 8 months prior to the institution that did not add the previously named beneficiaries – a plan to plan transfer sans beneficiaries (certainly not planned by the decedent).]

    You mention in a number of posts to simply move the IRA to another institution like Fidelity or Vanguard, but I’m not sure how one would do that exactly. The IRA is held under the decedents social security number and Fidelity and Vanguard won’t open an account using that persons tax number.

    I hope that makes sense and if so, what is the work-around?


    • Ron,

      Assuming the decedent is John Doe, the account should be retitled “John Doe, deceased,for the benefit of the Estate of John Doe.” You will have to obtain letters testamentary and an EIN for the estate. “Step 2” is the assignment of the estate’s interest in the IRA (intact) to the beneficiaries of the estate.


      • Thank you for that.

        Just to be clear (since I’ll use both “trust” and “estate”), as stated before, per custodian default the IRA beneficiary is “the estate.”

        The decedent had a trust and a (pour over) will. Hence, all assets not already in the trust (e.g. the IRA) belong to the trust and its beneficiaries. The trust has an EIN from the IRS. Likewise, the trustee has probate letters of testamentary from a state Superior Court (trustee / executor as named in trust and personal representative as named in will).

        Is the trust EIN the EIN you’re referring to (the one already issued), or does “the estate” – the IRA itself – need a separate EIN?

        Also, I’m not clear on your “step 2.” The goal is to distribute the IRA to the beneficiaries (6 with different interests) as stated in the trust. Ideally that would happen after a plan to plan transfer to an institution such as Fidelity or Vanguard (rather than 6 transfers).

        Does that make any / more sense?

        Thanks again.

        • I think my advice is the same. You still need to retitle the account “John Doe, deceased, for the benefit of the Estate of John Doe.” Second, you need to send a letter of instruction (accompanied with their form, if any) that assigns the estate’s interest in the IRA to the individuals. I would have the person sign twice, once as executor and once as trustee. Hopefully, the custodian will let you bypass the trust and assign directly to the individuals. I would give the custodian the trust’s EIN, if they will accept it, or the estate’s if they will not.

          • Thanks again.

            But “the estate” is ONLY the trust; a living / revocable trust which is now irrevocable. “The estate” being all assets owned by the decedent (including the IRA); any and all assets that were not held in title within the trust now belong to the trust / beneficiaries of the trust. There is no separate taxable estate… unless something separate needs to be created specifically for the IRA.

            That’s where the confusion lies. There is no clear picture of how the decedents IRA which defaults to “the estate” (the trust) can be moved plan to plan.

            And I guess I didn’t make this clear, but the re-titling seems like a slam-dunk. I wasn’t worried about that. It’s the tax number that has me confused. There is one (irrevocable) trust with one EIN. And as stated in the will, all the decedents assets belong to the trust (e.g. “the estate”). It seems to me that the IRS would not care what the tax number is only that it has one, but I have no idea.

            Or is this just too gray an area that no one on the planet knows the answer?

            Oh, and regarding your second answer (second part?), you’re saying the IRA should be split 6 ways among the beneficiaries AND THEN moved plan to plan?

            Thanks, I do appreciate the help in trying to understand this.

          • Ron,

            I get it that there is no probate estate, and that you have no EIN for the probate estate. Custodians are literal people, and I don’t know if you will be able to talk them into using the trust’s EIN. When a default beneficiary is the “estate,” it generally means probate estate, which necessitates a probate. You can painlessly get an EIN for the estate (even if you don’t file a probate), but the custodian may insist you get letters testamentary to prove that an executor has been appointed by the court. A court appointed executor will be needed to sign the papers, unless the individual is willing to fudge on this and sign as if he or she were appointed. You can argue for weeks with a custodian about an RLT being equivalent to an estate, but I think it is futile. The culprit here is the attorney or tax advisor who did not remind the client to complete the beneficiary designation. Saving the day in the manner we are discussing is a last resort when someone does not do their job earlier in the process.

            If your current custodian will not cooperate (in allowing the executor to assign the IRA intact to the individuals), you need to move it and then do the assignment with another custodian.


          • Hi Dave,

            Thanks, but that doesn’t get me that much closer to an answer.

            The first part you explain how it’s up to the custodian as to whether the trust EIN is sufficient, or if another is needed. Probate isn’t an issue since the executor has already been appointed by the court (informal probate).

            But then you lose me. And this is where my question began. You say “you need to move it,” but HOW do you move the IRA from Plan A / Custodian A to Plan B / Custodian B.

            Custodian A is the one who removed the beneficiaries from the IRA – the IRA had named beneficiaries (per statements) when the current custodian received the account so technically they were never added. It’s not like the 84 year old decedent changed their mind since all beneficiaries are those named in the trust (there was no upheaval, no disinheriting or anything going on). And no knowledgeable person would purposely remove all the tax benefits of the IRA. The custodian royally screwed it up.

            So the goal is to move the IRA from the screw-ups to a more consumer-friendly custodian such as Fidelity or Vanguard. But I don’t believe Fidelity or Vanguard can initiate the transfer of the IRA using the decedents social security number. That’s why I’ve been fixated on the issue of the tax number.

            And yes, I’m looking for some way to salvage a bad situation. And while obtaining another EIN is not difficult, it would be better to not create another tax paying entity if it wasn’t absolutely necessary.

            I’ll leave it at that. Thanks.

  40. I don’t know if your current custodian will cooperate on a direct transfer to an IRA account for the trust with a different custodian. The current custodian may insist that it will only accommodate an “estate to estate” transfer. If so, then the account with the new custodian will have to be set up in the name of the estate.

    The mechanics of transferring the IRA are easy. You will fill out an IRA account application (in the name of the estate or the trust, depending on whether the current custodian will cooperate on a direct transfer to a trust IRA), and an IRA transfer form with the current custodian. You will probably have to set up the destination IRA account before you give instructions to the current custodian. It is no different than when you transfer your personal IRA from Morgan Stanley to Schwab. The current custodian can do this electronically. Your representative at your new custodian should be able to coach you a little on this.

    I suppose you could give the current and new custodian the post-death EIN of the revocable trust, and tell them this is the EIN for the estate. This would avoid getting an unnecessary EIN for the probate estate. (I doubt they will insist on seeing the online IRS correspondence that identifies the taxpayer.) I realize it is a hassle getting an EIN for the estate, since the IRS will ask why you are not filing 1041s.

  41. Hi Dave,

    What a great resource you’ve built here. My situation is similar to other here. IRA CDs at my Dad’s small town bank when he died with no beneficiaries. The bank wouldn’t do beneficiary accounts. If the estate cashes out the CD and takes a distribution, is there a scenario where each of his 6 children named in his will could take their portion of the CDs from the estate (the executor could distribute the shares from the estate) and pay taxes based on their own tax bracket instead of the 39% that it appears the estate would be taxed for that money?

    • Liz,

      The tax laws allow the estate to assign / transfer its interest in the IRA in equal shares to six new IRA accounts, one for each beneficiary under the will. This is not a taxable event. The beneficiaries are then relegated to withdrawing their shares of the IRA over the remaining life expectancy of the decedent. But the applicable tax rates will be those of the six individuals, and probably far less than 39%. Unfortunately, many custodians refused to cooperate, and insist that a taxable distribution be made. If the bank refuses to cooperate, you have to move the IRA to another bank or brokerage house that is more user friendly.

  42. Dave,

    Here is the situation:

    My Father passed away… Has 160k in an IRA Variable annuity with Riversource.

    My father estate is listed as beneficiary…. Not my Mother as he intended..Riversource says lump sum taxable payout to estate is only option… Not spousal continuation

    Goal: to get into an IRA in my mothers name and avoid taxes.

    Please Please Please Help!

    • Mark,

      Your situation is more common than it should be. But there are solutions. Riversource is not giving you all of the options, because they want to minimize the amount of time they spend on administration.

      There are numerous IRS Private Letter Rulings that allow a tax free spousal rollover (when an IRA is payable to an estate) — so long as the spouse is the sole beneficiary of the estate. See, e.g., PLR 2002-10066, 2002-36052, 2004-06048. If your mother is the sole beneficiary of the estate, and Riversource will not cooperate, you should move the IRA to a more user friendly custodian, such as Vanguard or Fidelity.


      • Hi Dave,

        Can I get a point of clarification on Mark’s case, or any really involving “the estate” as beneficiary of an IRA. My question(s) is regarding the RMDs.

        If I understand this correctly, Mark’s mother will receive the “inherited IRA” from the decedent, but will be required to take the distributions based on the decedents life expectancy – e.g. if Mark’s mother were, say, 10 years younger, the RMDs WOULD NOT be based on her life expectancy.

        Is that correct?

        And by the same token, if there was no living spouse, and Mark was the sole beneficiary of the estate, then Mark would get the “inherited IRA” but would also be required to take the RMDs based on the decedents life expectancy.


        Also, can Mark’s mother now name a beneficiary? Let’s say based on the decedents life expectancy the RMDs have to be taken over a ten year period. What would happen if Mark’s mother were to pass away before that time?

        Thanks in advance.

  43. Hello Dave:

    I am executor of my brother’s (Gary) estate. Gary has an IRA annuity with MetLife with no beneficiary defined. Metlife is saying that my available settlement options for the estate are a single lump sum payment now or in 5 years. My understanding is that the entire lump sum payment would be taxable income in 2016 to the estate (true?) and instead I ultimately need to get the money allocated into beneficiary IRAs for each heir.

    MetLife is saying they cannot transfer the IRA money to a Beneficiary IRA in the name of the estate or to individual beneficiary IRAs in the name of each heir.

    How should I proceed?

    Do I need to get Metlife to retitle the IRA as a beneficiary IRA in the name of my brother’s estate and then get MetLife to do a plan to plan transfer to a friendly IRA custodian that will then let me allocate to beneficiary IRAs of each heir?

    I am not sure what my best options are and what I can and cannot force MetLife to do. I realize that things cannot be undone with the IRS and I want to ensure I get the best possible treatment from MetLife on Gary’s estate.

    If I have to take a lump sum payment, is the entire lump sum payment subject to estate income tax or can I distribute to the heirs without paying taxes and each heir would be required to realize ordinary income and pay taxes on the amount they received? Would I need to distribute all of the lump some in 2016 or could I spread it over a couple years?


    Thanks so much for any advice you can provide.


    • Chuck,

      Was your brother under age 70 1/2 at death? If so, you are probably relegated to the five year rule.


  44. Hi Dave:

    Hi Dave:

    Gary was 73.

    Is the lump sum offer metlife is making fully taxable and should I not avoid it? Would it not be best to get them to do a plan to plan transfer into a beneficiary IRA in the name of the estate and then transfer from there to bene IRAs set up for each of the 7 heirs? What can I force MetLife to do and what should I force them to do?


    • Gary,

      Sorry for taking so long to get back.

      If Gary was over age 70 1/2, you have some options. The best option is for the estate to distribute its beneficial interest in the IRA (i.e., intact) to the beneficiaries under his will (or the laws of intestate succession, if he had no will), and then have each beneficiary set up a separate inherited IRA account. The beneficiaries must take distributions over the remaining life expectancy of your brother.

      Mechanically, I would ask the custodian to retitle the IRA as Gary, deceased, for the benefit of Gary’s estate. Second, you will need to transfer the IRA to a more friendly custodian, such as Vanguard or Fidelity. Third, you will need to prepare custodian forms as needed to assign the estate’s beneficial interest in the inherited IRA to the beneficiaries under the will. The custodian may raise eyebrows, but from a tax perspective this defers recognition of gain until the beneficiaries take distributions.


      • Thanks Dave!

        Sounds like I am heading in the right direction. MetLife wants the titling to be “Estate of Gary Buffo FBO Gary Buffo Deceased” on the receiving IRA, which I plan to do on the eTrade side. Do you see any problems with this?

        Metlife is only promising to have their legal team review when I get the titling done along with a transfer form and a letter of acceptance from Etrade. They said they would not pre-approve and that I had to go through the steps, but my pressuring of Edward Jones has resulted escalation in their corporate structure and them supposedly going to the mat for the estate with metlife. Wish me luck!

        • Its fine to title the IRA “Estate of Gary Buffo FBO Gary Buffo Deceased.”

          I had to deal with MetLife several years ago and it did not turn out well. The legal staff took a couple of months to consider my request, and then said “no.” And I think the broker was pressing MetLife to say “yes.” I would move the IRA to a friendlier custodian and avoid further frustration.


          • Dave: That is what I am trying to do: Move to another IRA custodian. They have no tax law basis to not do what I am asking. If they do not do what I am asking, I will rain a major, social media shit storm on all complicit brands involved. This has become very personal to me. I absolutely have the money, time and expertise to get traction in social media, especially with the current public sentiment. I think they are starting to compute the potential damage and costs to their brands.

          • Chuck,

            Good luck. Years ago I gave up on getting mad at these outfits, since I was usually venting my frustration on someone without power to make any decisions. I think the custodians see our requests as extra work with a modest risk of being blamed for tax disasters. They don’t want to have to train their people to understand these rules. They probably also believe that most of the money is going to be transferred to other brokerages, and there is not much to gain by burning up a lot of time processing “custom” requests. I am not very optimistic that things will change, except perhaps for clients having huge accounts.


  45. It looks like my prior question is still awaiting a moderator to approve it. That problem is water under the bridge at this point. The account owner has passed away, but the attorney solved the other problem by altering the trust agreement.
    The question now is how to pay as little income tax as possible on the IRA funds that the trust inherited. The beneficiaries of the trust are the account owner’s daughter, and then three charities. It would seem prudent to satisfy the charity designations with IRA money to avoid taxation, if possible. Is there a way to direct some of the IRA funds to the charity, so the taxable distributions don’t have to get split between the daughter and the charities? There are some brokerage and bank accounts that will be taxed either not at all, or very little. It would be good to allocate those funds to the daughter.
    If this can be done, what instructions have to be given to the IRA custodians?

    • Bruce,

      If the trust gives authority to make non-prorata distributions, which is typical, the trustee will assign beneficial interests in the IRAs (but not other trust assets) to the charities but not the individuals. Mechanically, you will set up separate inherited IRA accounts for the charities in the name of “John Doe, deceased, for the benefit of Charity.” Second, the trust will distribute a partial beneficial interest in the IRA (i.e., intact) to each charitable account. You do not want the trust to take a distribution, since there may be problems in getting a charitable distribution deduction under IRC 642(c).


  46. Dave:

    I am having great difficulty dealing with Vanguard who is administering a Consolidated Edison employer plan with an approx value of $325,000.00 and request your expertise. Their telephone representatives are insisting that a lump sum distribution to the estate is our only option under the following circumstances: Decedent died in April, 2015 at 65 years of age. His estate was designated as the plan’s beneficiary. The sole residuary legatee of the decedent’s Will is a totally discretionary trust for the benefit of the decedent’s sole grandchild which trust terminates at age 25. I am getting absolutely nowhere with Vanguard’s telephone representatives (who make it very difficult to communicate with them). They keep insisting that there is no one else to discuss this with and that there is no option- except a lump sum distribution to the estate – which, as you know, would have devastating income tax consequences. I have even enlisted the assistance of the family’s financial planner who received the same response from Vanguard. Any insight and/or assistance that you could provide dealing with this matter, and especially with Vanguard, would be greatly appreciated.

    • Alex,

      I am sorry for taking so long to get back to you.

      The first step is to review the Consolidated Edison plan document to determine the distribution options. Although the tax laws may allow a distribution to the beneficiaries of the decedent’s will, the plan may not. You will have light years more flexibility if CE will allow you to roll the plan benefits into an IRA? Will they allow that?


      • Vanguard says our only option is a lump sum distribution to the estate.
        Thanks for the advice. I will ask Vanguard for the plan documents
        and we will go from there. Thanks again.

  47. if a spouse dies during the course of a year, can the surviving spouse gift $14,000 to a person on behalf of the deceased in addition to his/her own $14,000?

    • No. But the surviving spouse can give probably away her property (including that received from the decedent) without any gift tax burden. I say “probably” because a federal gift tax is imposed if an individual’s lifetime gifts (in excess of $14k/person/year) exceed $5.49 million.


  48. This is incredible information! I am the administrator for my aunt’s estate. The estate has been going on for nearly two years and we are finally getting to the point where funds can be distributed and the estate wrapped up. She left her IRA to the estate by default (no beneficiary named). There are multiple charities named to get lump sums. The will states that the charities are to get the taxable distributions. Both my attorney and CPA said we will most likely have to close out the IRA, pay the taxes, and then distribute. Granted, the estate is in NY, so maybe that is true, but with everything I have been reading, plus your article, it makes me think there is another way. I’ve been gathering the tax exempt information from all the charities just in case. So far the charities have been helpful and understand that funds may come from a retirement investment. Maybe a transfer of assets to inherited IRAs? Or QCD? I’m trying to find someone that can get me through this. The CPA said a good tax attorney probably could. Anyway, thank you for your post. I’ve bookmarked it.

    • Under the federal tax laws, the estate can assign its beneficial interest in the IRA to the charities in partial or full satisfaction of the bequests under the will. This does not trigger income to the estate. The IRA stays intact; the assignment by the estate causes the charities to be beneficiaries of inherited IRAs. The eventual cash distributions to them will be tax free and none of the distributions will be taxable to the estate.

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