Help--80 yr deceased uncle never took RMD

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Help--80 yr deceased uncle never took RMD

Postby Charleville » Fri Jul 15, 2011 11:26 pm

My uncle by marriage recently passed away at the age of 80-he was not in good health and unable to care for himself for the last 4 years. As I untangled his complicated finances over the past few years I did not realize he held an annuity wrapped in a traditional IRA. I thought it was a life insurance policy. In any event what should I do, he was an only child and had no children so inserting myself into his life was not easy not knowing any of his history. Can I explain to the IRS he was incompetent over the last 4 years and probably a few years before that too? This has to occur more often than I think. Hopefully, somebody out there has had some experience in this type of situation?
Last edited by Charleville on Fri Jul 15, 2011 11:50 pm, edited 1 time in total.
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Postby Alan S. » Fri Jul 15, 2011 11:42 pm

The IRS has been very slow to notify people who miss their RMDs, so you are right, this is not at all unusual.

The IRS Regs seem to skip over the possibility of a multi year RMD omission and only clearly state that the RMD for the year of death (only for the year of death) is the responsibility of the beneficiary. If the beneficiary does not recognize the shortfall until a later year, they can take the missed RMD and request a waiver of the excess accumulation 50% penalty by filing Form 5329 and stating the "reasonable cause" for the omission. The IRS will likely waive any penalty.

But the bigger question here is what the IRS will do about all those previous years where they missed the tax revenue. They have not been aggressive about this, but am sure that if they wanted to they could levy a 50% excess accumulation penalty against the estate of the IRA owner. Have never heard of such a case, but it appears the IRS could do this.

Who is the IRA beneficiary?
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Postby Charleville » Fri Jul 15, 2011 11:49 pm

My uncle's spouse is the beneficiary. She is incompetent now and knows nothing about her finances.
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Postby Watty » Fri Jul 15, 2011 11:54 pm

There are ways to get the penalty waved if he was incompetent but I would highly suggest that you have a tax professional that knows the process help you with this.

In 2009 no RMD’s were required as part of the stimulus packages so you need take that into account when figuring out the situation.
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Postby Electron » Fri Jul 15, 2011 11:58 pm

Do you have any information on the type of annuity?

If the annuity was an immediate or income annuity you should not have a problem assuming it was paying out on a regular basis.

A variable or deferred annuity would be a different case.

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Last edited by Electron on Sat Jul 16, 2011 2:10 pm, edited 1 time in total.
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Postby Alan S. » Sat Jul 16, 2011 12:00 am

Then she, her attorney in fact, or conservator should take at least the 2011 RMD. In addition:
1) She should assume ownership of the IRA unless she is under 59.5
2) She should name a successor beneficiary for the IRA ASAP
3) It should be determined if she inherited any basis in the IRA from non deductible contributions - former tax returns should be checked for Form 8606. If there is some basis, the IRA RMDs would be partially tax free.

It could be that the IRS considers what action to take based on the amount in the account. The insurance company should file a Form 5498 each year showing the year end fair market value of the IRA. If there is a ton of fringe benefits in this annuity it is possible that the market value for RMD purposes is higher than the cash value. The insurance company may need to verify the actual amount of the 2011 and later RMDs.
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Re: Help--80 yr deceased uncle never took RMD

Postby House Blend » Sat Jul 16, 2011 8:46 am

Charleville wrote:Hopefully, somebody out there has had some experience in this type of situation?


Yes. See this thread:
http://www.bogleheads.org/forum/viewtopic.php?t=69452

Not much to update at this point. We filed her taxes, and took out extra withdrawals to make up for the missing RMDs, and filed a "beg-for-mercy" statement along with Form 5329.

No penalties imposed....so far....
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