Can a dead woman take her RMD?

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Calm Man
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Can a dead woman take her RMD?

Post by Calm Man » Mon Jun 02, 2014 8:34 pm

I am referring my friend to a CPA as my friend is rather unsophisticated in financial matters and made a colossal error a few months ago. He wants to "roll the dice" as he isn't afraid that the IRS is going to jail him for this. He's right I"m sure on going to jail but I don't know about the penalties, fines, fees, and who knows what else? Does he need a tax lawyer or enrolled agent instead?

His mother died in January. She hadn't taken her RMD this year from her IRA (she was 80). He is the sole beneficiary and it is POD at Vanguard so no problem. He hasn't told Vanguard. So he just went ahead a month later and took her RMD and moved it to her taxable money market account at Vanguard. He withheld 20% for federal taxes. Now obviously he should have taken the RMD based on his age in his inherited IRA (he hasn't set that up yet of course). Although he had POA over all her accounts, you can't go in and initiate an RMD without logging in as the actual person, which he did ( he logged in as his mother). The total RMD was something like 12K.

But is it possible that this is legal and his dead mother could take her RMD? Otherwise how would it be corrected and if he just "rolls the dice" what could the authorities do? And if all goes smoothly, what will Vanguard possibly do when he goes through the transfer department to establish the inherited IRA and they see the date of death or will they mind their own business and just transfer it?
Last edited by Calm Man on Mon Jun 02, 2014 8:53 pm, edited 1 time in total.

Retread
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Re: Can a dead women take her RMD?

Post by Retread » Mon Jun 02, 2014 8:38 pm

How does he plan to report this? He will need to file a 1040 for his mother for 2014 reporting the RMD and also taking credit for the tax withheld. The return calls for date of death which preceded the RMD. He's looking at a bit of a mess.
Bruce
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fposte
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Re: Can a dead women take her RMD?

Post by fposte » Mon Jun 02, 2014 8:45 pm

Setting aside the logging in as Mom thing, he's actually not wrong on the RMD--it's her RMD in the year of her death. It's the year afterward that it gets calculated to his life expectancy.

Calm Man
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Re: Can a dead women take her RMD?

Post by Calm Man » Mon Jun 02, 2014 8:56 pm

Retread wrote:How does he plan to report this? He will need to file a 1040 for his mother for 2014 reporting the RMD and also taking credit for the tax withheld. The return calls for date of death which preceded the RMD. He's looking at a bit of a mess.
Bruce
Bruce, I am clearly not an expert, though I have helped my parents file for years. The RMD is shown on a 1099R and does not at all indicate the date of the RMD, just that it happened that calendar year. Am I missing something here?

Spirit Rider
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Re: Can a dead woman take her RMD?

Post by Spirit Rider » Mon Jun 02, 2014 8:58 pm

Calm Man wrote:I am referring my friend to a CPA as my friend is rather unsophisticated in financial matters and made a colossal error a few months ago. He wants to "roll the dice" as he isn't afraid that the IRS is going to jail him for this. He's right I"m sure on going to jail but I don't know about the penalties, fines, fees, and who knows what else? Does he need a tax lawyer or enrolled agent instead?

His mother died in January. She hadn't taken her RMD this year from her IRA (she was 80). He is the sole beneficiary and it is POD at Vanguard so no problem. He hasn't told Vanguard. So he just went ahead a month later and took her RMD and moved it to her taxable money market account at Vanguard. He withheld 20% for federal taxes. Now obviously he should have taken the RMD based on his age in his inherited IRA (he hasn't set that up yet of course). Although he had POA over all her accounts, you can't go in and initiate an RMD without logging in as the actual person, which he did ( he logged in as his mother). The total RMD was something like 12K.

But is it possible that this is legal and his dead mother could take her RMD? Otherwise how would it be corrected and if he just "rolls the dice" what could the authorities do? And if all goes smoothly, what will Vanguard possibly do when he goes through the transfer department to establish the inherited IRA and they see the date of death or will they mind their own business and just transfer it?
You are both wrong.

From the IRS:
Required minimum distributions after the account owner dies

For the year of the account owner’s death, use the RMD the account owner would have received. For the year following the owner’s death, the RMD will depend on the identity of the designated beneficiary.

1. In the year of death the RMD is based on the decedent. For amounts prior to death, it is taxed to the decedent. After death, the beneficiary must take the RMD and will be taxed to the beneficiary(s).
2. In the year following death the RMD is based on the beneficiary(s) ages and taxed thereof.

So not only did your friend commit financial fraud by taking actions on his mother's deceased account, but caused the RMD to be taxed to her instead of him. What is done is done on the former, but he should correct the taxation of the RMD.

Alan S.
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Re: Can a dead women take her RMD?

Post by Alan S. » Mon Jun 02, 2014 9:31 pm

Colossal is accurately descriptive. He needs to come clean with Vanguard right away and file the death Cert with them ASAP to set up an inherited IRA. Errors like this tend to compound with time and can create a real mess that will be costly and time consuming for him to clean up if there are any further delays. It is best for him to avoid having the IRS come into this at some point in the future.

VG's reaction to the abuse of the POA and the distribution going to his mother rather than to him is not predictable. But so far there has not been any IRS reporting done, so VG has some flexibility. Upon receipt of the death cert. it will be obvious to VG that the distribution came after her death. While the amount of the year of death RMD was correct, it went to the wrong account and this may affect VG 1099R reporting.

He just needs to act expeditiously and not mess things up any worse from here.

One possible approach from VG would be that he had the option to take the RMD and direct it to be paid to another as a gift. Since the RMD was required to be paid to him and he re directed it, VG could still send him the 1099R with his SSN on it. Since he is sole beneficiary of both the IRA and the estate, this might be the easiest way out for him and for VG. In any event, he needs to cooperate fully with VG from here on out. Thankfully, there are no other beneficiaries to further muddy the waters.

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Re: Can a dead woman take her RMD?

Post by CrazyPete » Tue Jun 03, 2014 12:35 am

Spirit Rider wrote: 1. In the year of death the RMD is based on the decedent. For amounts prior to death, it is taxed to the decedent. After death, the beneficiary must take the RMD and will be taxed to the beneficiary(s).
2. In the year following death the RMD is based on the beneficiary(s) ages and taxed thereof.

So not only did your friend commit financial fraud by taking actions on his mother's deceased account, but caused the RMD to be taxed to her instead of him. What is done is done on the former, but he should correct the taxation of the RMD.
I'd say consult a CPA, but your interpretation doesn't seem right:

The account beneficiary has until September of the year following the year of death to re-title the IRA as an inherited IRA. So that isn't urgent, on its own. He took the RMD amount based on the decedent -- that also seems correct. The POA is moot because it expired at death and the account now belongs to him -- who else would it belong to? Not the decedent or the estate. Vanguard may be unhappy with his use of his mom's login information under their terms of service, but he owns the account, so it doesn't seem fraudulent -- he has gained nothing by it. He put the RMD in the wrong account (or did he? if the taxable account was POD, it is also his account, not his mom's or the estate's), but I think that should just be corrected by taking it back out, no harm no foul. He does need to let Vanguard know that the 1099 for the RMD (which won't be issued until next year) needs to be in his name, not the mother's.

Regarding the withholding, he hasn't made an error in paying taxes due, he has only made an unnecessary payment on behalf of the mother and under-withheld for himself. So he needs to wait and get a refund on the mom's taxes, and cover the shortfall on his own taxes, I think?

If all this money is legally his (certainly true for the IRA, maybe also true for the taxable account), I don't see anything catastrophically wrong; it is important to get all the accounts titled correctly but there is some slack in the timing for doing that. And I don't see anything for which he has broken a rule that could result in a penalty -- except perhaps under-withholding on his own taxes if he doesn't correct that before the end of the year.

Gill
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Re: Can a dead woman take her RMD?

Post by Gill » Tue Jun 03, 2014 7:23 am

Spirit Rider wrote:You are both wrong.
To whom is this rather direct comment addressed? There are several of us who feel you may be the one who is incorrect about it being taxed to the mother who is a cash basis taxpayer.
Gill

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Re: Can a dead woman take her RMD?

Post by Spirit Rider » Tue Jun 03, 2014 11:05 am

Gill wrote:
Spirit Rider wrote:You are both wrong.
To whom is this rather direct comment addressed? There are several of us who feel you may be the one who is incorrect about it being taxed to the mother who is a cash basis taxpayer.
Gill
Seeing as I quoted Calm Man's OP in my response, it is clear I was responding to him and my comment was directed to him and his friend. I even highlighted the issues I was addressing.

The friend was incorrect with this action:
So he just went ahead a month later and took her RMD and moved it to her taxable money market account at Vanguard. He withheld 20% for federal taxes.
As Alan S. stated, the proper action of the beneficiary was to provide Vanguard with a death certificate, create an inherited IRA, and take the decedent's untaken RMD in the year of death. This is taxable to the beneficiary.

Calm Man was incorrect with this statement:
Now obviously he should have taken the RMD based on his age in his inherited IRA (he hasn't set that up yet of course).
The RMD in the year of death is based on the decedent. It is the year after death that uses the beneficiary's age to compute the RMD (or to continue the decedent's in the less likely event they are younger).

I am not the one who is correct as verified by Alan S. (an authority on these issues. Also, I quoted the IRS. This information is clearly available there an on other sites. Do some research.

inbox788
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Re: Can a dead woman take her RMD?

Post by inbox788 » Tue Jun 03, 2014 11:28 am

I'm not the one rolling the dice, but if I didn't know the correct answer, and it's so much trouble, I'd just ignore it and do what is expedient. Filing the proper paperwork with Vanguard to correct the problem going forward, and ignoring any mistakes until Vanguard or the IRS comes calling. I'm betting they won't. Whats the statue of limitations? three years? If they do, that's when I'd contact the CPA for help. This is a year when a persons parent just died. The IRS is mean enough, they don't need to beat up on the retired, elderly and mourning. Sympathies for your loss.

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Re: Can a dead woman take her RMD?

Post by archbish99 » Tue Jun 03, 2014 11:48 am

Three years for mistakes; six years for fraud.
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Re: Can a dead woman take her RMD?

Post by Spirit Rider » Tue Jun 03, 2014 11:55 am

CrazyPete wrote:I'd say consult a CPA, but your interpretation doesn't seem right:

The account beneficiary has until September of the year following the year of death to re-title the IRA as an inherited IRA. So that isn't urgent, on its own.

He took the RMD amount based on the decedent -- that also seems correct.
It is not my interpretation, do a little reading of the Wiki and the IRS relevant info.

A single account beneficiary has until 12/31 in the year following death to retitle and take their RMD.

Yes, he took the proper year of death RMD. However, he did so completely wrong as Alan S. has pointed out.

You might not think anything wrong with him taking the actions on his mother's accounts because he is the POD beneficiary. I guarantee VG or any other financial institution looks very unkindly on this action and quite possibly were technically criminal.

Calm Man
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Re: Can a dead woman take her RMD?

Post by Calm Man » Tue Jun 03, 2014 12:30 pm

Spirit Rider wrote:
Calm Man wrote:I am referring my friend to a CPA as my friend is rather unsophisticated in financial matters and made a colossal error a few months ago. He wants to "roll the dice" as he isn't afraid that the IRS is going to jail him for this. He's right I"m sure on going to jail but I don't know about the penalties, fines, fees, and who knows what else? Does he need a tax lawyer or enrolled agent instead?

His mother died in January. She hadn't taken her RMD this year from her IRA (she was 80). He is the sole beneficiary and it is POD at Vanguard so no problem. He hasn't told Vanguard. So he just went ahead a month later and took her RMD and moved it to her taxable money market account at Vanguard. He withheld 20% for federal taxes. Now obviously he should have taken the RMD based on his age in his inherited IRA (he hasn't set that up yet of course). Although he had POA over all her accounts, you can't go in and initiate an RMD without logging in as the actual person, which he did ( he logged in as his mother). The total RMD was something like 12K.

But is it possible that this is legal and his dead mother could take her RMD? Otherwise how would it be corrected and if he just "rolls the dice" what could the authorities do? And if all goes smoothly, what will Vanguard possibly do when he goes through the transfer department to establish the inherited IRA and they see the date of death or will they mind their own business and just transfer it?
You are both wrong.

From the IRS:
Required minimum distributions after the account owner dies

For the year of the account owner’s death, use the RMD the account owner would have received. For the year following the owner’s death, the RMD will depend on the identity of the designated beneficiary.

1. In the year of death the RMD is based on the decedent. For amounts prior to death, it is taxed to the decedent. After death, the beneficiary must take the RMD and will be taxed to the beneficiary(s).
2. In the year following death the RMD is based on the beneficiary(s) ages and taxed thereof.

So not only did your friend commit financial fraud by taking actions on his mother's deceased account, but caused the RMD to be taxed to her instead of him. What is done is done on the former, but he should correct the taxation of the RMD.
Spirit rider,
Thank you, thank you. As I read what you pasted from the IRS, I/we understand the the RMD in the year of death must be taken on the owner's life expectancy that year (the divisor is decided the second the new year begins). And that if the IRA was properly transferred to the beneficiary(s) that for that year of death the amount of RMD that would have been for the dead person must be taken. But I don't see it say (unless I am missing it) that the RMD must be taken by the inheritor and not the dead person. (The tax rates probably are, but not necessarily are, lower for the dead person than the inheritor.) What do you think?

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Phineas J. Whoopee
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Re: Can a dead woman take her RMD?

Post by Phineas J. Whoopee » Tue Jun 03, 2014 1:38 pm

This is one of those times when posters on bogleheads.org can't help in any detail.

Step one is for your friend to retain a criminal defense attorney. Step two is do everything possible to show good faith.

A good outcome is for your friend to be liable only for civil penalties.

PJW

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Re: Can a dead woman take her RMD?

Post by Spirit Rider » Tue Jun 03, 2014 1:44 pm

Calm Man wrote:Spirit rider,
Thank you, thank you. As I read what you pasted from the IRS, I/we understand the the RMD in the year of death must be taken on the owner's life expectancy that year (the divisor is decided the second the new year begins). And that if the IRA was properly transferred to the beneficiary(s) that for that year of death the amount of RMD that would have been for the dead person must be taken. But I don't see it say (unless I am missing it) that the RMD must be taken by the inheritor and not the dead person. (The tax rates probably are, but not necessarily are, lower for the dead person than the inheritor.) What do you think?
The reason that untaken RMDs in the year of death must be taken by the beneficiary is well..., because the decedent is dead. Therefore, the decedent can't take their own RMD.

I don't know if there is explicit language in the IRS regulations. There might be something in a notice, ruling, FAQ, etc... However, sometimes the results are by inferences from multiple references.

You could send a PM to Alan S. and maybe he knows of a reference, or can clarify.

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Re: Can a dead woman take her RMD?

Post by MarkNYC » Tue Jun 03, 2014 1:57 pm

Spirit Rider wrote:
Calm Man wrote:Spirit rider,
Thank you, thank you. As I read what you pasted from the IRS, I/we understand the the RMD in the year of death must be taken on the owner's life expectancy that year (the divisor is decided the second the new year begins). And that if the IRA was properly transferred to the beneficiary(s) that for that year of death the amount of RMD that would have been for the dead person must be taken. But I don't see it say (unless I am missing it) that the RMD must be taken by the inheritor and not the dead person. (The tax rates probably are, but not necessarily are, lower for the dead person than the inheritor.) What do you think?
The reason that untaken RMDs in the year of death must be taken by the beneficiary is well..., because the decedent is dead. Therefore, the decedent can't take their own RMD.

I don't know if there is explicit language in the IRS regulations. There might be something in a notice, ruling, FAQ, etc...
See Treas. Reg. 1.401(a)(9)-5, Q&A - 4

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Re: Can a dead woman take her RMD?

Post by Kevin M » Tue Jun 03, 2014 2:08 pm

I have been through this a couple of times at Vanguard.

The agent authorization ends at death of the owner, so obviously it does not cover any actions in the owner's account after death. Also it does not cover logging onto the owner's account, dead or alive. The owner's funds appear in the agent's accounts list online, and permitted online activities are done by the agent using the agent's login. Certain activities also are permitted by phone and written instructions.

Vanguard does not allow any external activity on the owner's account after death--they essentially lock the account once notified of death. If as sole IRA beneficiary you want to stick with Vanguard, they create a new inherited IRA account for you, and transfer the assets from the deceased owner's IRA into the new inherited IRA. If multiple beneficiaries, it's basically the same except the assets are divided among the beneficiaries' accounts.

As others have stated, the deceased owner's RMD is taken from the inherited IRA. If there are multiple beneficiaries, it can be taken from any of the inherited IRAs in any proportions.

I don't think a criminal defense attorney is necessary, but this is a bit of a mess, and I would follow Alan's advice.

Kevin
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Phineas J. Whoopee
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Re: Can a dead woman take her RMD?

Post by Phineas J. Whoopee » Tue Jun 03, 2014 2:28 pm

If we were discussing merely and only Vanguard's policies I would agree, Kevin, but we're not. We're talking about state criminal law.

A criminal defense attorney will be in the best position to advise Calm Man's friend how to go about documenting true and reasonable doubt regarding mens rea. The objective will be to discourage the district attorney from bothering to bring the case before a grand jury. Secondarily it might be to affect the judgement of a petit jury.

Fraud is nothing to take casually, even if the action was innocently entered into without criminal intent.

That's my opinion: better safe from conviction than sorry. I'm not disturbed if your opinion and mine disagree.

I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.

PJW

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Re: Can a dead woman take her RMD?

Post by TIAX » Tue Jun 03, 2014 3:02 pm

I highly doubt there is criminal liability here. Who was defrauded? The estate of which he is the sole beneficiary? And what was the fraud? The money was moved from one account to another.
Phineas J. Whoopee wrote:If we were discussing merely and only Vanguard's policies I would agree, Kevin, but we're not. We're talking about state criminal law.

A criminal defense attorney will be in the best position to advise Calm Man's friend how to go about documenting true and reasonable doubt regarding mens rea. The objective will be to discourage the district attorney from bothering to bring the case before a grand jury. Secondarily it might be to affect the judgement of a petit jury.

Fraud is nothing to take casually, even if the action was innocently entered into without criminal intent.

That's my opinion: better safe from conviction than sorry. I'm not disturbed if your opinion and mine disagree.

I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.

PJW

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Re: Can a dead woman take her RMD?

Post by 123 » Tue Jun 03, 2014 3:24 pm

Perhaps the easiest way to fix this is for whoever files the tax return on behalf of the deceased to issue a 1099 to the son that allocates the RMD distribution liability for the year of death to the son who received the proceeds. (The 1099 can shift the tax liability for the distribution but it cannot change the credit for the income tax withholding as far as I know).

This issue with Vanguard about account activity after death will just wash away. When they get proof of death to process the account to an inherited type I don't think it will necessarily raise any issues. I doubt they want to raise any issues when no one else is complaining and there aren't any disputes. While one might expect diligence and thoroughness it is often the case in financial services back office operations that practicality and expediency win.

But that's just my guess.
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Re: Can a dead woman take her RMD?

Post by Oicuryy » Tue Jun 03, 2014 3:40 pm

Would something similar to this TurboTax tip apply here?
https://turbotax.intuit.com/tax-tools/t ... 12090.html
Say a taxpayer who has a substantial amount in money-market mutual funds dies on June 30th. Only interest earned up to that date would be reported on the final tax return. Earnings after that date are taxable to the beneficiary of the account, or to the estate.

That can create some hassles since the payer – a mutual fund, bank or broker, for example – will report income to the IRS on a 1099 form. Although you should try to get ownership of the account changed as quickly as possible after the death of the owner, the 1099 income report may well show more income assigned to the decedent than it should. In such cases, you must report the entire amount on Schedule B of the decedent's return, and then deduct the amount that is being reported by the estate or other beneficiary who actually received the income.
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Retread
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Re: Can a dead woman take her RMD?

Post by Retread » Tue Jun 03, 2014 3:48 pm

Phineas J. Whoopee wrote:If we were discussing merely and only Vanguard's policies I would agree, Kevin, but we're not. We're talking about state criminal law.

A criminal defense attorney will be in the best position to advise Calm Man's friend how to go about documenting true and reasonable doubt regarding mens rea. The objective will be to discourage the district attorney from bothering to bring the case before a grand jury. Secondarily it might be to affect the judgement of a petit jury.

Fraud is nothing to take casually, even if the action was innocently entered into without criminal intent.

That's my opinion: better safe from conviction than sorry. I'm not disturbed if your opinion and mine disagree.

I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.

PJW
[OT comment removed by admin LadyGeek] but this question deserves a proper answer.
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Re: Can a dead woman take her RMD?

Post by Phineas J. Whoopee » Tue Jun 03, 2014 3:52 pm

Retread wrote:
Phineas J. Whoopee wrote:If we were discussing merely and only Vanguard's policies I would agree, Kevin, but we're not. We're talking about state criminal law.

A criminal defense attorney will be in the best position to advise Calm Man's friend how to go about documenting true and reasonable doubt regarding mens rea. The objective will be to discourage the district attorney from bothering to bring the case before a grand jury. Secondarily it might be to affect the judgement of a petit jury.

Fraud is nothing to take casually, even if the action was innocently entered into without criminal intent.

That's my opinion: better safe from conviction than sorry. I'm not disturbed if your opinion and mine disagree.

I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.

PJW
[OT comment removed by admin LadyGeek] but this question deserves a proper answer.
Bruce
Phineas J. Whoopee wrote: ...
I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.
PJW

Retread
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Re: Can a dead woman take her RMD?

Post by Retread » Tue Jun 03, 2014 4:07 pm

Phineas J. Whoopee wrote:I stand by my initial statement: this is a case in which bogleheads.org posters can't help in any detail.
That may be true, but your suggestion of possible criminal responsibility and retaining a criminal defense attorney is totally off the mark and you know it, I'm sure. Throwing around a few Latin terms doesn't add to your credibility.
Bruce
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Re: Can a dead woman take her RMD?

Post by archbish99 » Tue Jun 03, 2014 4:16 pm

Kevin M wrote:The agent authorization ends at death of the owner, so obviously it does not cover any actions in the owner's account after death. Also it does not cover logging onto the owner's account, dead or alive. The owner's funds appear in the agent's accounts list online, and permitted online activities are done by the agent using the agent's login. Certain activities also are permitted by phone and written instructions.
That's not quite true -- I have POA for my parents' accounts, and before I had a Vanguard login for myself, I was told that logging on as them was an acceptable way to access things online. (Of course, the rep who told me that could have been wildly off-base.) Since then, I've opened a small account with Vanguard primarily to have an ID that can be used for the POA.

Obviously, the POA terminates at death, so neither my account nor logging on as them would be in-scope after that happens. Does that mean that executors/heirs must do everything by phone and mail until the account is transferred? It's my understanding that some things can only be done while the account is still in the decedent's name, such as a death put on CDs, though I haven't had to deal with that myself.
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Re: Can a dead woman take her RMD?

Post by MarkNYC » Tue Jun 03, 2014 4:36 pm

TIAX wrote:I highly doubt there is criminal liability here. Who was defrauded? The estate of which he is the sole beneficiary? And what was the fraud? The money was moved from one account to another.
I would agree regarding any criminal issue, but there is a reasonable chance that the transaction, if not corrected, will result in the government receiving less tax than it should, which would be the case if the decedent's marginal tax rate was less than that of the beneficiary. And since the decedent died in January, his/her final 1040 would probably include less than 1/12 the decedent's normal annual income (excluding the RMD). And since personal exemptions and the standard deduction are not prorated for a short-year 1040, it's likely the decedent's final year tax rate would be very low, maybe even zero, including the RMD.

I'm inclined to agree with the earlier suggestion of picking up the RMD on the decedent's return (which will match the 1099R), then backing-out the RMD amount on line 21 with a statement that the distribution is being correctly picked up by the nominee/beneficiary, and list the beneficiary's SSN. The beneficiary would then pick up the RMD amount on line 21 of his/her return with a similar explanation. In this way the IRS will receive the proper total tax on each tax return. (State tax discrepancies, if any, would likely be minimal)
Last edited by MarkNYC on Tue Jun 03, 2014 6:50 pm, edited 1 time in total.

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Re: Can a dead woman take her RMD?

Post by Kevin M » Tue Jun 03, 2014 6:40 pm

archbish99 wrote: Obviously, the POA terminates at death, so neither my account nor logging on as them would be in-scope after that happens. Does that mean that executors/heirs must do everything by phone and mail until the account is transferred? It's my understanding that some things can only be done while the account is still in the decedent's name, such as a death put on CDs, though I haven't had to deal with that myself.
I worked with the Vanguard reps by phone for both trust and IRA accounts. For example, certain securities (bonds and CDs) couldn't be evenly divided among beneficiaries/heirs, so either had to be sold or had to be split up unevenly but equitably. I discussed these situations with the reps, and they did the necessary transactions in the decedent's accounts before transferring assets to the beneficiary/heir accounts. I believe this included executing death puts on CDs, but don't recall for sure, or if I was able to do it after CDs were transferred to my account (or never executed them because the rates were good).

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Re: Can a dead woman take her RMD?

Post by Kevin M » Tue Jun 03, 2014 6:53 pm

archbish99 wrote: That's not quite true -- I have POA for my parents' accounts, and before I had a Vanguard login for myself, I was told that logging on as them was an acceptable way to access things online. (Of course, the rep who told me that could have been wildly off-base.) Since then, I've opened a small account with Vanguard primarily to have an ID that can be used for the POA.
From the agent authorization form:
Online access is only available to those who can register online at vanguard.com. If the agent isn’t a Vanguard client, he or she should call us at 800-662-2739 to review our options for online access.
Maybe I'm not interpreting this correctly, or maybe "our options for online access" include, "go ahead and log in with the owner's username and password". Since I was a Vanguard client before becoming an agent, I don't know what the other options for online access might include.

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Re: Can a dead woman take her RMD?

Post by LadyGeek » Tue Jun 03, 2014 7:12 pm

I agree with Kevin M that Vanguard will stop the agent authorization as soon as the death is reported to Vanguard. This happened when my father recently passed - my agent authorization was gone the next day. Not only are the transactions removed, but all of the statements as well - which makes sense to do so. Vanguard's "transition specialists" know what they're doing.

As for the question of account access, I would think that a login account is restricted to the person who signed up for it. See: Your account. Any other type of access is not authorized and therefore needs the agent authorization forms.

I helped my Mom do the account transfers (taxable and IRA rollover - sole spouse beneficiary). The transfer only took a few days, including my full agent authorization access to the new accounts. By logging in under my own account, I am able to see and modify anything that my Mom can under her own account (full agent) - including Quicken downloads. The difference is that I am acting under a Power of Attorney - which is authorized access under Vanguard's policy.

======================

I assume that the OP is referring to a traditional IRA, which is in the wiki here: Inheriting an IRA

Roth IRAs are treated somewhat differently. See: Inheriting a Roth IRA
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Re: Can a dead woman take her RMD?

Post by Alan S. » Tue Jun 03, 2014 7:46 pm

Here is an excellent article by Natalie Choate regarding beneficiary re titling requirements post IRA owner's death:

http://www.morningstar.com/advisor/t/83 ... ed-ira.htm

Unfortunately, the article does not comment on post death transactions executed by unauthorized parties and how major IRA custodians handle these when discovered. Perhaps the response is dependent on the individual facts and circumstances in each case, but the longer this goes before the facts are reported to VG, any reconstructive activity becomes potentially more complex. In this case, if corrective activity is completed before year end, there is a better chance that the IRS will not be brought into the fray. But I expect VG to move very slowly now, wanting to determine if this distribution affects any other parties than the son. VG will not want to make any decision that brings them into any potential litigation.

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Re: Can a dead woman take her RMD?

Post by LadyGeek » Tue Jun 03, 2014 7:57 pm

That link doesn't work without a Morningstar subscription. I can access the article via google: Titling the Inherited IRA - Morningstar - Google Search, but only the first page.
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Re: Can a dead woman take her RMD?

Post by Kevin M » Tue Jun 03, 2014 8:36 pm

LadyGeek wrote:That link doesn't work without a Morningstar subscription.
A free subscription is all that's required--at least it worked for me.

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Re: Can a dead woman take her RMD?

Post by Pacific » Wed Jun 04, 2014 4:00 am

In order to avoid exactly this type of situation, would it be wise for those persons who take their RMDs to do so as a lump sum each January?

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Re: Can a dead woman take her RMD?

Post by Professor Emeritus » Wed Jun 04, 2014 4:37 am

Retread wrote:Throwing around a few Latin terms doesn't add to your credibility.
Bruce

Without getting into the rest of it. Mens rea is a term 'derived" from Latin but with a specific English language legal meaning.



Cf. Subpoena , impromptu, verbatim , pro Rata, Habeus Corpus , versus etc. etc etc

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Re: Can a dead woman take her RMD?

Post by Retread » Wed Jun 04, 2014 5:16 am

Professor Emeritus wrote:Without getting into the rest of it. Mens rea is a term 'derived" from Latin but with a specific English language legal meaning.



Cf. Subpoena , impromptu, verbatim , pro Rata, Habeus Corpus , versus etc. etc etc
Yes, Professor, I know. :)
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Re: Can a dead woman take her RMD?

Post by Kevin M » Wed Jun 04, 2014 1:37 pm

Pacific wrote:In order to avoid exactly this type of situation, would it be wise for those persons who take their RMDs to do so as a lump sum each January?
If having the beneficiaries have to worry about taking the RMD is your main concern, then sure, why not? There may be other reasons to wait until later in the year. One that comes to mind is that you can adjust your tax withholding on the RMD to cover your taxes owed, and reduce or eliminate the need to do quarterly estimated tax payments. You are likely to have a better idea of your income tax obligations later in the year, and there is no penalty if your taxes are paid by withholding late in the year. Another reason might be that you have high yielding CD or stable value fund in your IRA/401k, and there currently is nothing comparable available to you in a taxable account. Another might be that one or more of your beneficiaries is in a lower tax bracket than you, so better for them to take the RMD than for you to take it.

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Re: Can a dead woman take her RMD?

Post by manwithnoname » Wed Jun 04, 2014 2:12 pm

there has been too much drama regarding what has transpired. RMD mistakes happen all of the time and are easy to correct.

Solution: hire a tax advisor or CPA.

Since you cant put toothpaste back in the tube don't try sending the $ back to VG IRA

Tax principle: IRS cares about RMD being taken in year of death which has been accomplished and that all income is allocated to the taxpayers who receive it and pay taxes on it.

Deceased owner's tax year ends on date of death. Any income received after DOD is taxed to decedent's estate which is a separate taxpayer.

Estate needs to have an executor appointed if there is a will or have an administrator appointed if there is no will in order to to distribute assets, settle estate and sign tax returns.

Tax advisor will obtain a Tax ID for estate and all probate assets of deceased including MM fund holding the RMD will be transferred to estate. Tax advisor will include RMD as an asset of Estate

Since RMD was received after death it is income of the estate.

The RMD is income in respect of a decedent. It can be transferred to the IRA beneficiary (son) by the estate and the estate will deduct the RMD from its taxable income and the beneficiary will include it as taxable income.

Tax advisor will file necessary tax returns for estate and beneficiary will pay tax on the RMD.

Son must establish an inherited IRA account and take RMDs based on his life expectancy beginning in 2014.
Last edited by manwithnoname on Wed Jun 04, 2014 2:46 pm, edited 2 times in total.

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Re: Can a dead woman take her RMD?

Post by hq38sq43 » Wed Jun 04, 2014 2:21 pm

Professor Emeritus wrote:
Retread wrote:Throwing around a few Latin terms doesn't add to your credibility.
Bruce

Without getting into the rest of it. Mens rea is a term 'derived" from Latin but with a specific English language legal meaning.



Cf. Subpoena , impromptu, verbatim , pro Rata, Habeus Corpus , versus etc. etc etc
Habeas Corpus?
Harry at Bradenton

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Re: Can a dead woman take her RMD?

Post by MarkNYC » Wed Jun 04, 2014 4:16 pm

manwithnoname wrote:
Since RMD was received after death it is income of the estate.

The RMD is income in respect of a decedent. It can be transferred to the IRA beneficiary (son) by the estate and the estate will deduct the RMD from its taxable income and the beneficiary will include it as taxable income.
Since the son was the designated beneficiary of the IRA, the IRA account is not a probate asset of the estate, and the executor has no jurisdiction over the disposition of the IRA funds. The RMD that was untaken by the decedent in the year of death must be distributed to and taxed to the IRA beneficiary in the year of death. Treas. Reg. 1.401(a)(9)-5 Q&A 4
manwithnoname wrote:
Son must establish an inherited IRA account and take RMDs based on his life expectancy beginning in 2014.
Since the IRA owner died in January of 2014, the son must take his own RMDs beginning in 2015, not 2014.

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Re: Can a dead woman take her RMD?

Post by Alan S. » Wed Jun 04, 2014 7:03 pm

So, anyone have an opinion on what VG will do once they understand what happened here?

Suppose son establishes and provides documentation to VG at VGs request that he is the executor and sole beneficiary of the estate, after he also provides the forms to get the IRA re titled to him as beneficiary. Might VG then request that as executor he return the funds to VG and VG would in turn cut a new check to the son and then feel that they could issue the 1099R to the son instead of to the estate? That would get VG out of the loop quickly and easily. They would know that there are no other estate beneficiaries who could file a complaint and tie things up in their remediation Dept or whatever they call it.

OR similarly -
Might VG treat the son's actions as an implied instruction to pay HIS distribution to the estate and without any shift of funds still make out the 1099R to the son (this is similar to how a QCD distribution from a BDA is reported, ie beneficiary requests check be made out to the charity but 1099R is issued to the beneficiary).

The fact that the distribution just happened to be the RMD amount or that the son was trying to complete the RMD obligation is immaterial. The real issue is the abuse of the expired POA and how VG will now proceed assuming they receive full cooperation of the son. VG probably does not care what the implications are for the estate 1041.

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Re: Can a dead woman take her RMD?

Post by Longdog » Wed Jun 04, 2014 8:02 pm

Kevin M wrote:
Pacific wrote:In order to avoid exactly this type of situation, would it be wise for those persons who take their RMDs to do so as a lump sum each January?
If having the beneficiaries have to worry about taking the RMD is your main concern, then sure, why not? There may be other reasons to wait until later in the year. One that comes to mind is that you can adjust your tax withholding on the RMD to cover your taxes owed, and reduce or eliminate the need to do quarterly estimated tax payments. You are likely to have a better idea of your income tax obligations later in the year, and there is no penalty if your taxes are paid by withholding late in the year. Another reason might be that you have high yielding CD or stable value fund in your IRA/401k, and there currently is nothing comparable available to you in a taxable account. Another might be that one or more of your beneficiaries is in a lower tax bracket than you, so better for them to take the RMD than for you to take it.

Kevin
RMDs don't have to be taken all at once. They can also be taken monthly, quarterly, etc. So, someone who is taking RMDs and passes during the year will have a reasonable proportion of their IRA RMD withdrawn before death and taxable at their rate, and reduce the amount taken after death and taxable at the beneficiaries rate.

Also, I think if the beneficiary is a spouse, and the spouse assumes the IRA, it is probably not that critical because the final tax return of the decedent is also that year's tax return of the spouse (if they file married), so all of the RMD will be on one tax return, whether or not it was taken before death (and attributable to the decedent) or after death (and attributable to the spouse). This issue, I think, really only applies to non-spouse beneficiaries.
Steve

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Re: Can a dead woman take her RMD?

Post by MarkNYC » Wed Jun 04, 2014 8:19 pm

Alan S. wrote:So, anyone have an opinion on what VG will do once they understand what happened here?
Alan,

Here's my guess. Vanguard won't change anything, especially since the POA, executor, and beneficiary are the same person. Vanguard did nothing wrong. They made a distribution based on a POA they had on file, having received no documentation terminating the POA. They will issue the 1099R in the name of the deceased IRA owner, which is consistent with how the distribution was requested and executed. Vanguard will leave it to the executor/beneficiary to sort out any tax problems solely created by the executor/beneficiary's incorrect and deceptive actions.

I could be wrong.

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Re: Can a dead woman take her RMD?

Post by bsquared » Thu Jun 05, 2014 2:20 am

In moving an inherited IRA to the name of the beneficiary, is it the usual practice to require that the beneficiary submit an application for an IRA just the same as if you were applying for your own IRA? I am asking because I am concerned about papers I am asked to sign from time to time for a custodian that has demonstrated repeatedly that it is not well versed in the law.

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Re: Can a dead woman take her RMD?

Post by Kevin M » Thu Jun 05, 2014 2:13 pm

bsquared wrote:In moving an inherited IRA to the name of the beneficiary, is it the usual practice to require that the beneficiary submit an application for an IRA just the same as if you were applying for your own IRA? I am asking because I am concerned about papers I am asked to sign from time to time for a custodian that has demonstrated repeatedly that it is not well versed in the law.
Not just the same, but yes, you will need to sign some forms. Here are the Vanguard forms for non-spouse beneficiaries: Inherited IRA Kit for Nonspouse Beneficiaries

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Re: Can a dead woman take her RMD?

Post by manwithnoname » Thu Jun 05, 2014 5:36 pm

MarkNYC wrote:
manwithnoname wrote:
Since RMD was received after death it is income of the estate.

The RMD is income in respect of a decedent. It can be transferred to the IRA beneficiary (son) by the estate and the estate will deduct the RMD from its taxable income and the beneficiary will include it as taxable income.
Since the son was the designated beneficiary of the IRA, the IRA account is not a probate asset of the estate, and the executor has no jurisdiction over the disposition of the IRA funds. The RMD that was untaken by the decedent in the year of death must be distributed to and taxed to the IRA beneficiary in the year of death. Treas. Reg. 1.401(a)(9)-5 Q&A 4
manwithnoname wrote:
Son must establish an inherited IRA account and take RMDs based on his life expectancy beginning in 2014.
Since the IRA owner died in January of 2014, the son must take his own RMDs beginning in 2015, not 2014.


The cold reality that is being ignored by everyone is that you cant put toothpaste back in the tube. There is no way under the tax law to return the IRA distribution to the deceased's IRA and then have the beneficiary take the distribution as an MRD. Since the 12k distribution is irreversibly taxable income the son/beneficiary has to play the cards that have been dealt and come up with a result that ultimately distributes the 12k to him as taxable income. One option is to leave the 12k in the decedents MM fund which will be transferred to an account in the name of the estate and then distribute the 12k to the beneficiary as IRD which will also be the MRD he is entitled to receive in 2014. No harm, no foul. IRS does not care who receives the MRD from the decedent's IRA during the year, it can be the IRA owner, the estate or the beneficiary - regs only requires that the MRD be distributed.

Reg 1.409(a)(9)-5 Q 4(a) " Thus an MRD is required for the year of the employees/IRA owner's death and that amount must be distributed to a beneficiary to the extent that it has not already been distributed to the employee/IRA owner." Distribution of the 12k to the decedent satisfies the requirement for an MRD from the IRA in 2014. If you don't think it meets the requirement for an MRD because it was distributed under a POA was revoked prior to the distribution then the only option is to have the beneficiary establish a inherited IRA and take a 12k distribution from it by 12/31/14. Its the taxpayer's choice.

Since the MRD paid to the decedent is income in respect of a decedent because it was received after the IRA's owner death it is property of the estate and can be paid to any lawful beneficiary. It cant be returned to the IRA. If the MRD is paid to the son/IRA beneficiary it will be taxed to him which would be the same taxable result as if he had received the MRD from an inherited IRA.

I don't see VG changing the 1099R to be payable to the estate because that was not the instruction that VG received and son could not request a payment to the estate because his authority to request a payment under the POA was revoked before the estate was established. I would not ask VG how to fix this problem.

If anyone has a better option please present it.

Yes the son must take a distribution in 2015

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Re: Can a dead woman take her RMD?

Post by Alan S. » Thu Jun 05, 2014 7:26 pm

MarkNYC also opined that VG would probably just issue the 1099R as distributed - to the decedent, and it will become IRD addressed by the executor. Makes sense.

The IRS will obviously consider the year of death RMD satisfied. The decedent passed in January making it very likely that she will pay no income tax whatsoever on her final return or certainly will be in a very low bracket if she even has to file a 2014 return. It would be a very convenient way for the son to end up with the full RMD tax free when the RMD money is distributed out of the estate to him as the estate beneficiary vs what the son might have to pay had he distributed the RMD to himself after establishing the BDA and received the 1099R under his own SSN.

I have seen several posts from IRA beneficiaries trying to determine if the tax bill will be lower if the year of death RMD is distributed to the decedent, to the estate of the decedent, or to the beneficiary as if they had a choice when taking the RMD. But there is no choice.

Perhaps that is what the OP meant when he said the son was "rolling the dice". This possibly is intentional.

As for VG, they probably have a detailed policy for dealing with this once they understand that the POA was abused. In some other situations with different fact patterns the estate might have had different beneficiaries than on the IRA and such activity could have ended up in a fraud investigation. It is possible that they freeze such accounts pending appropriate discovery.

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Re: Can a dead woman take her RMD?

Post by MarkNYC » Thu Jun 05, 2014 8:10 pm

manwithnoname wrote:
The cold reality that is being ignored by everyone is that you cant put toothpaste back in the tube. There is no way under the tax law to return the IRA distribution to the deceased's IRA and then have the beneficiary take the distribution as an MRD.
Not everyone is ignoring that reality. I don't think it's a good idea to send the distribution back to Vanguard. And I never suggested it.
manwithnoname wrote:
One option is to leave the 12k in the decedents MM fund which will be transferred to an account in the name of the estate and then distribute the 12k to the beneficiary as IRD which will also be the MRD he is entitled to receive in 2014. No harm, no foul. IRS does not care who receives the MRD from the decedent's IRA during the year, it can be the IRA owner, the estate or the beneficiary - regs only requires that the MRD be distributed.

Reg 1.409(a)(9)-5 Q 4(a) " Thus an MRD is required for the year of the employees/IRA owner's death and that amount must be distributed to a beneficiary to the extent that it has not already been distributed to the employee/IRA owner." Distribution of the 12k to the decedent satisfies the requirement for an MRD from the IRA in 2014...
Since the MRD paid to the decedent is income in respect of a decedent because it was received after the IRA's owner death it is property of the estate...


An individual cannot receive taxable income after they die, thus a decedent cannot receive a post-death IRA distribution. It can only be received by the estate or a beneficiary. It's important to distinguish between the decedent and the estate, which are two different taxpayers.
manwithnoname wrote:If anyone has a better option please present it.
I think I already presented one (and so did poster 123). See my post above at 5:36 on 6/3, which provides a solution that is relatively clean, transparent, results in the proper tax paid by the decedent and the beneficiary, and avoids a potential 1099R matching problem later on. For these reasons, I believe it is the best solution. Just my opinion.
Last edited by MarkNYC on Thu Jun 05, 2014 9:29 pm, edited 2 times in total.

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Re: Can a dead woman take her RMD?

Post by LadyGeek » Thu Jun 05, 2014 8:35 pm

Here's a definition from the wiki: Estate planning:
Wiki wrote:What is an estate?

An estate is a legal entity created as the result of a person’s death. The decedent’s estate is a separate legal entity for federal tax purposes.[2]

An estate consists of real and/or personal property of the deceased person. The estate pays any debts owed by the decedent and then distributes the balance of the estate’s assets to the beneficiaries of the estate.

The estate exists until the final distribution of the assets is made to the heirs and other beneficiaries.

[2] Publication 1635 - Understanding Your EIN, (Employer Identification Number), from the IRS.
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