Legal Blog

The Weekly Scenario from Steve Shane – 5.6.13

Question:  My husband recently received an IRA from his mother who recently passed away.  What are the rules surrounding inherited IRAs? Answer:  The rules surrounding inherited IRAs can be tricky but generally speaking, when a person inherits an IRA, the inherited beneficiary must begin to take distributions the year after the owner dies by December 31st. This is the case regardless of whether the person inherited a traditional IRA or a Roth.  Basically, to calculate this distribution, you take the balance on Dec. 31 of the previous year and divide it by the inheritor’s life expectancy, as listed in a specific IRS table generally referred to as the ‘Single Life Expectancy’ table. Unless the account is a Roth, there is income tax on this required payout. If a beneficiary would like to, he or she can choose to take the minimum required distributions over the course of their own expected life spans. Furthermore, as a planning note, a beneficiary can choose to disclaim an inherited IRA in favor of someone else. However, it is important to note that it is not a will or the intestacy laws that affect where a disclaimed IRA will go, it is the beneficiary designation form and the policy of the company that held the IRA that will control. These policies sometimes state that the IRA will become part of the deceased person’s estate as a default where no beneficiary is stated.  From an income tax standpoint, the estate is usually not be a tax favored beneficiary. Comment:  Few situations are exactly alike so it is very important that clients seek advice in this area due to the hidden traps for the unwary. Steven E. Shane Principal Offit│Kurman Attorneys At Law 301.575.0313 Washington 443.738.1513 Baltimore 410.218.9339 Mobile 301.575.0335 Facsimile Please note the above material discussed is intended to provide only general information. Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated. For assistance with your specific legal problem or inquiry please contact me directly.