Posted on 01 March 2008
By Mark Miller
Q: My family just experienced the recent deaths of both parents within in a 20-day period. In addition to other assets willed to the heirs; there exist IRAs that are worth a little over $40,000. For ease to obtain funds while our parents were alive, they made one brother the beneficiary for easy access if needed. It was intended that upon our parents’ death the funds remaining would be divided four ways– there was no need to access prior to the deaths, and there is no conflict on the intent; the named beneficiary agrees to the division. Is there a way these IRAs can be rolled to individual children/heir accounts, one for each heir, and allow them to accrue and grow–withdrawals at a latter time, as dictated by age and retirement of each heir? Can we avoid cashing these and paying taxes now-leaving them to continue to grow; and taking and paying taxes at a later time; which will actually add more to the tax amount in later life. The children that would participate in this potential roll-over range in age from early 40s to early 60s. - MDF, Denton, Texas, Via RetirementRevised.
A: This sounded pretty complicated, so I turned for answers to Jeff Maas and Briggs Matsko of Lincoln Financial Advisors Corp. in Sacramento, California. Briggs is a nationally-recognized retirement income distribution specialist.
Since there is only one named beneficiary, the IRAs cannot be split four ways, with the exception of the option below. Your brother can take the required minimum distribution, (or RMD, as required by the IRS) over his life expectancy which would accomplish your goal of deferring liquidation and taxation. He would divide the year end value of the accounts by his age in the life expectancy table (following IRS rules) and take a distribution each year. He could then take the after tax amount and split this four ways and gift the three siblings the correct amount. IRS Publication 590 lists the rules and an example to follow on page 20 & 21 and the life expectancy table is on pages 88 & 89, the document can be found here. The other option would be for your brother to disclaim the IRAs, which would send them through the probate process or direct the account as stated in a pour-over will. An estate planning professional should be contacted for these options.