Advanced Underwriting Consultants

Question of the Day – May 9

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: I had a single client die last year leaving his estate the beneficiary of his IRA.  The client had not started taking RMDs.  Can the estate beneficiaries stretch out the income tax result?

Answer: Probably not, based on the reasoning in several private letter rulings the IRS issued in recent years.

In PLR 200945011, the IRS said that when the estate is the beneficiary, an IRA account can be sub-divided into multiple estate beneficiary accounts and transferred tax-free.  However, the PLR also specifically says that the distribution of the accounts to the nonspouse beneficiaries must be done in conformance with the five year rule—since the estate was the original beneficiary.

PLR 201203033, while contemplating slightly different facts, seems to be consistent with that.  PLR 201210045 reaches a different result in similar circumstances, but only with regard to a surviving spouse.

If we treat the private letter rulings as law, an account naming the estate the beneficiary can be divided into separate accounts for the beneficiaries of the estate by way of tax-free transfer.  However, the RMD rules for each account must be consistent with estate as beneficiary.  Where the decedent had not started taking RMDs, that means the entire account must be distributed—and taxed—by the end of the fifth year following the original owner’s death.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.