Who is responsible for taking RMDs after death of IRA owner?

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piton
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Who is responsible for taking RMDs after death of IRA owner?

Post by piton »

hi – I’m hoping this isn’t complicated.

I was the custodian of a relative’s IRA. There are many primary beneficiaries listed.

I informed vanguard of the death of the owner. They immediately locked me out of that account, which makes sense to me, but what I didn’t know is that the RMD for the year was not yet taken. I had it set to “automatic”. Had I known, I would have just taken it to avoid any complication.

The situation now is that there are many beneficiaries. Lets say that they all keep their portion of the IRA as an inherited IRA. I can’t force anybody to take an RMD. Everyone is on good terms, but hypothetically, I can’t guarantee that everyone would take their percentage.

1. If nobody takes an RMD, wouldn’t there be tax consequences to the estate of the deceased IRA owner?

2. If they do take an RMD, do they have to state this officially (with a document) that, that is the intention?

3. What needs to be done to “fix” this?

thx!
lakpr
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by lakpr »

I am not a lawyer nor have any personal experience with this situation, but my understanding is that any remaining RMD for the year must be satisfied by the estate first, and only then the remaining amount should be distributed to the inheritors under Inherited IRA.

So the question of asking the inheritors what they want to do with does not/should not arise. The executor must withdraw and withhold the remaining RMD first before administering the estate. The executor also files the tax returns for the estate.
Topic Author
piton
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by piton »

The problem is that I don't have any access to the IRA and it's in the process of being dispersed to the beneficiaries. I thought the point of RMDs is to withdraw money from the IRA, but that isn't possible now.
livesoft
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by livesoft »

This was asked before and I was in a similar situation. Here's a link to the discussion:
viewtopic.php?f=2&t=127077
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lakpr
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by lakpr »

I think that's the issue, the executor ignoring the RMD remaining for the year. When the estate tax returns are filed, the IRS is sure to catch the missing RMD and send a notice to the executor. He/She might be held responsible for the penalties and taxes.

An executor should have known this upfront ... must be on his checklist.

Separately though, if any of the inheritors would withdraw the money form Inherited IRA within the same year of death, it can be deemed as satisfying the RMD requirement. It does not matter WHICH specific inheritor(s) would do such a thing; IRS only cares that $x from the IRA to be removed as taxable income. Whether that $x is satisfied by a single or multiple beneficiaries is irrelevant.

If the executor ignored the RMD requirement, then I suppose his only choice is to ask the inheritors nicely.
NotWhoYouThink
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by NotWhoYouThink »

lakpr wrote: Fri Sep 20, 2019 11:53 am I think that's the issue, the executor ignoring the RMD remaining for the year. When the estate tax returns are filed, the IRS is sure to catch the missing RMD and send a notice to the executor. He/She might be held responsible for the penalties and taxes.

An executor should have known this upfront ... must be on his checklist.

Separately though, if any of the inheritors would withdraw the money form Inherited IRA within the same year of death, it can be deemed as satisfying the RMD requirement. It does not matter WHICH specific inheritor(s) would do such a thing; IRS only cares that $x from the IRA to be removed as taxable income. Whether that $x is satisfied by a single or multiple beneficiaries is irrelevant.

If the executor ignored the RMD requirement, then I suppose his only choice is to ask the inheritors nicely.
The executor had nothing to do with the IRA, and could not have taken an RMD after the owner died if there were primary beneficiaries listed. The IRA went directly to the beneficiaries, bypassing probate and the executor. It is up to the beneficiaries to take the RMD, as discussed in livesoft's link.

The brokerage did the right thing locking the IRA after the owner died until the IRA could be divided.

If the IRA had not named beneficiaries, or had named the estate as the beneficiary, that would be a different situation.
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LilyFleur
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by LilyFleur »

NotWhoYouThink wrote: Fri Sep 20, 2019 11:58 am
lakpr wrote: Fri Sep 20, 2019 11:53 am I think that's the issue, the executor ignoring the RMD remaining for the year. When the estate tax returns are filed, the IRS is sure to catch the missing RMD and send a notice to the executor. He/She might be held responsible for the penalties and taxes.

An executor should have known this upfront ... must be on his checklist.

Separately though, if any of the inheritors would withdraw the money form Inherited IRA within the same year of death, it can be deemed as satisfying the RMD requirement. It does not matter WHICH specific inheritor(s) would do such a thing; IRS only cares that $x from the IRA to be removed as taxable income. Whether that $x is satisfied by a single or multiple beneficiaries is irrelevant.

If the executor ignored the RMD requirement, then I suppose his only choice is to ask the inheritors nicely.
The executor had nothing to do with the IRA, and could not have taken an RMD after the owner died if there were primary beneficiaries listed. The IRA went directly to the beneficiaries, bypassing probate and the executor. It is up to the beneficiaries to take the RMD, as discussed in livesoft's link.

The brokerage did the right thing locking the IRA after the owner died until the IRA could be divided.

If the IRA had not named beneficiaries, or had named the estate as the beneficiary, that would be a different situation.
If the inheritance is disbursed quickly, the inheritors have time to set up their inherited IRAs and take an RMD this year. But they need to be told to get on this. It involves paperwork and getting the current custodian to transfer the money. I found working with someone at Schwab to be helpful; my advisor helped me fill out the paperwork (there were parts I didn't understand). They may also need a death certificate to do the transfer.
billfromct
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by billfromct »

This is why I have my RMD automatically taken out each year in early January & sent over to my MM fund.

Even after explaining everything to my kids verbally & in writing, something would be forgotten & the RMD wouldn't get done.

A lot of people here recommend having RMDs taken out in December in order to earn extra returns (interest, dividends, etc.), but to me the chance of more stress to my family later on (1-2 years) with a letter from the IRS isn't worth it.

bill
RetiredAL
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by RetiredAL »

Having read the previous thread on this, I proactively changed my elderly Dad's RMD from monthly to on-demand and took the balance of the RMD needed for this year.

Next year, I plan to take his RMD fairly early in the year, say by February. As the executor, but not the only beneficiary, its one headache I don't want to deal with when it is within my power to proactively avoid it.

I had several headaches the end of last year and early this year dealing with a RMD underpayment caused by the brokerage having their head in the wrong place. The IRS did wave the penalty, so everything worked out OK. The brokerage no holds has those two IRA's.
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Spirit Rider »

lakpr wrote: Fri Sep 20, 2019 11:38 am I am not a lawyer nor have any personal experience with this situation, but my understanding is that any remaining RMD for the year must be satisfied by the estate first, and only then the remaining amount should be distributed to the inheritors under Inherited IRA.

So the question of asking the inheritors what they want to do with does not/should not arise. The executor must withdraw and withhold the remaining RMD first before administering the estate. The executor also files the tax returns for the estate.
This is not correct. Assets that do not pass to the estate are not probate assets and the executor has no involvement other than notifying the beneficiaries or recipients of TOD/ETF accounts. If the estate is not a beneficiary, the estate and the executor have no involvement in the IRA. That is the joint responsibility of the beneficiaries.

They combined must take any remaining last year RMD in any proportion they chose from their respective Inherited IRAs after they are rolled over. This distribution(s) are taxable to recipient and not the estate.. In other words, if one beneficiary chooses to distribute >= the RMD balance. Then none of the other beneficiaries need to take any distributions. They can wait until no later than 12/31 of the year following death to do a direct rollover to their Inherited IRA and start taking lifetime distributions based on their life expectancy.
Topic Author
piton
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by piton »

Thank you for the link livesoft!

To sum up, at least for me. :happy

Lets say all of the beneficiaries have their inherited IRA's set up. One person cashes in their inherited IRA and it's enough to cover the full RMD.

How do I connect the RMD from that one heir to the final tax return for the deceased to prove that the RMD was in fact taken?
adamthesmythe
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by adamthesmythe »

Wouldn't the IRA be split up into separate accounts, one for each of the beneficiaries?
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Artsdoctor
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Artsdoctor »

piton wrote: Fri Sep 20, 2019 12:59 pm Thank you for the link livesoft!

To sum up, at least for me. :happy

Lets say all of the beneficiaries have their inherited IRA's set up. One person cashes in their inherited IRA and it's enough to cover the full RMD.

How do I connect the RMD from that one heir to the final tax return for the deceased to prove that the RMD was in fact taken?
The beneficiaries, as a group, are responsible for making sure that the RMD is taken for one year only: the year of death. After that, each beneficiary is responsible for their own RMDs. If there's a good relationship with all of the beneficiaries, there shouldn't be a problem having the one who took more than the RMD fulfill the requirement by attaching the 1099R with their return--as long as someone took the RMD, you don't need to prove anything. If the beneficiaries are not communicating properly or there's a lack of trust, then the traditional thinking is to file a 5329 with your return but I'd suggest you discuss this with your accountant.
Alan S.
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Alan S. »

A much larger hassle is created if the IRA custodian is not notified of the death before an "automatic" RMD is distributed to the decedent than if the RMD does not get completed. Since the distribution to the decedent is post death, these funds will go to the estate subject to probate, and the beneficiaries of the estate could be much different than the beneficiaries of the IRA. This would involve the executor in far more tax related issues than a late RMD, for which the IRS always waives the penalty with a properly filed 5329. .

In this case, VG should have terminated automatic distributions immediately upon submission of the death certificate required, but sometimes this does not get done before an automatic distribution is made. Many of these automatic distributions are monthly.

Therefore, if an IRA owner's health is declining, the RMD should probably be distributed early in the year in a lump sum and automatic distributions terminated.

Sometimes, when there are many designated beneficiaries, the IRA custodian will attempt to require beneficiary info from ALL the beneficiaries before transferring to separate inherited IRAs for any of them. This is not a requirement, and while all beneficiaries should act promptly, the more beneficiaries there are the more likely at least one of them is a procrastinator. If the custodian refuses to transfer inherited IRAs for those who submit all required info, they should be pressured. No beneficiary should be held hostage from acquiring their own inherited IRA due to the lack of action from others.
Kagord
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Kagord »

This is very common, it's not your problem, it's between the beneficiaries and the old and new IRA custodian. If your curious, usually, the new custodian will usually provide information of what needs to be done (a 20-30 page, Welcome to your new Inherited IRA, now what..etc).

For the estate executor/trustee, I believe the IRA value at passing is part of the Fed estate tax and may be part of state estate or inheritance tax calculations.
NotWhoYouThink
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by NotWhoYouThink »

piton wrote: Fri Sep 20, 2019 12:59 pm Thank you for the link livesoft!

To sum up, at least for me. :happy

Lets say all of the beneficiaries have their inherited IRA's set up. One person cashes in their inherited IRA and it's enough to cover the full RMD.

How do I connect the RMD from that one heir to the final tax return for the deceased to prove that the RMD was in fact taken?
You don't. It's not your problem, there is nowhere to report it on the final tax return.

With multiple beneficiaries, it is almost certain that at least one of them will cash out the IRA quickly, whether that makes tax sense or not. The only enforcement of the requirement to take the RMD really would be an IRS audit on one of the beneficiaries. Otherwise it's something you are required to do and you should do but there's typically no government check on the process.
Last edited by NotWhoYouThink on Fri Sep 20, 2019 2:46 pm, edited 1 time in total.
Big Dog
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Big Dog »

The Vanguard transition team is very good about telling beneficiaries whether the decedent had taken his/her RMD for this year, and if not, that the beneficiaries have to take an RMD this year.

Since you are not a beneficiary, there is no reason for you to know. But if interested, just ask one of the beneficiaries what Vanguard told them.
sport
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by sport »

billfromct wrote: Fri Sep 20, 2019 12:28 pm This is why I have my RMD automatically taken out each year in early January & sent over to my MM fund.

Even after explaining everything to my kids verbally & in writing, something would be forgotten & the RMD wouldn't get done.

A lot of people here recommend having RMDs taken out in December in order to earn extra returns (interest, dividends, etc.), but to me the chance of more stress to my family later on (1-2 years) with a letter from the IRS isn't worth it.

bill
The problem with this is that it precludes the tax advantage of QCDs during the year. If you plan on making charitable donations in any case, then you should make the QCDs before you complete your RMD if you want the best tax benefit.
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Artsdoctor
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by Artsdoctor »

NotWhoYouThink wrote: Fri Sep 20, 2019 2:28 pm
piton wrote: Fri Sep 20, 2019 12:59 pm Thank you for the link livesoft!

To sum up, at least for me. :happy

Lets say all of the beneficiaries have their inherited IRA's set up. One person cashes in their inherited IRA and it's enough to cover the full RMD.

How do I connect the RMD from that one heir to the final tax return for the deceased to prove that the RMD was in fact taken?
You don't. It's not your problem, there is nowhere to report it on the final tax return.

With multiple beneficiaries, it is almost certain that at least one of them will cash out the IRA quickly, whether that makes tax sense or not. The only enforcement of the requirement to take the RMD really would be an IRS audit on one of the beneficiaries. Otherwise it's something you are required to do and you should do but there's typically no government check on the process.
That appears to be the consensus. If the RMD is small and there are 5 beneficiaries, I don't think I'd give it much thought. If the RMD is $50,000 and there are two beneficiaries, I'd probably make sure it was done properly. Who needs the hassle of making a misstep especially you're aware of what should be done?
livesoft
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by livesoft »

As noted there was no need to indicate that the RMD was taken by a beneficiary on the decedent's final tax return. In my case, my siblings were the other beneficiaries and we all get along and talk to each other, so I knew one of them had cashed in their inherited IRA and it was enough to cover the RMD. I didn't have to do anything about the decedent's RMD on my tax return at all. If the IRS had come to me asking about the RMD, I would have told them one of the other beneficiaries had withdrawn enough to cover it. If the IRS wanted proof, then I would probably told them to get proof themselves first from someone else and awaited their response.
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cheese_breath
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Re: Who is responsible for taking RMDs after death of IRA owner?

Post by cheese_breath »

piton wrote: Fri Sep 20, 2019 11:33 am
...I informed vanguard of the death of the owner. They immediately locked me out of that account, which makes sense to me, but what I didn’t know is that the RMD for the year was not yet taken. I had it set to “automatic”. Had I known, I would have just taken it to avoid any complication....
It's good you didn't know because your authority to do anything ended with the owner's death. It would be illegal for you to take the RMD after the owner's death.
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