Bulletin Board Notice
Notice to Executors and Trustees:
Here is how to transfer an inherited IRA that is payable to the estate (or trust) OUT of the estate (or trust) to the estate (or trust) beneficiary(ies), WITHOUT having a distribution of the entire account.
Is your company an IRA provider that would like some more business?
Here's the problem. Many IRA owners die leaving their IRAs to an estate or a trust. The estate or trust legally terminates after a period of time, but before the end of the Applicable Distribution Period for the IRA benefits. For example, if the IRA owner dies at age 72, leaving his IRA to his estate, the Applicable Distribution Period is what would have been the IRA owner's life expectancy had he lived, 15 years, but the estate wants to terminate and go out of existence after about two years.
The executor of course can transfer the estate's assets out to the residuary beneficiaries of the estate; in fact he must do so. The IRA is one of those assets. So, the executor instructs the IRA provider to change the name and social security number on the IRA to the name and SSN of the beneficiary of the estate. If there are several beneficiaries, the executor instructs the IRA provider to divide up the inherited IRA and retitle the newly-divided accounts into the names of the respective beneficiaries of the estate.
This is perfectly legal... but some IRA providers refuse to follow the instructions of the executor; instead, they insist they can only make distributions to the estate. In other words, they insist that either the estate must remain open for many extra years (involving substantial additional probate expenses), or the entire IRA must be terminated and distributed in a lump sum.
But there are other IRA providers who believe (along with me) that this position is not supported by the tax law or any other law. When asked about this problem, I answer that the executor's best remedy (or the trustee's remedy, if the problem arises when a trust is terminating and distributing to the trust's residuary beneficiaries) is to move the account by means of a plan-to-plan transfer to an IRA provider that permits such transfers. Once the account is moved to the new IRA provider, the transfer of the IRA, intact, to the beneficiaries of the estate or trust can then take place.
Now I'm getting calls from my readers who have this problem, asking for the names of the cooperative IRA providers who permit such transfers!
The answer is: Yes I do. Both the Fidelity and Vanguard mutual fund firms' policy is to permit the fiduciary of an estate or trust to transfer the inherited IRA to the estate or trust beneficiaries. New York Life Insurance Company is another IRA provider that allows such transfers; contact their Retirement Consulting Group. Of course, the fiduciary must present proper instructions and show proper evidence of authority (just as in transferring non-IRA assets). If you are an executor or trustee who has this problem with an IRA provider, I suggest that you do a plan-to-plan transfer of the account to Fidelity, Vanguard, or New York Life!
If you are an IRA provider who would welcome plan-to-plan transfers of inherited IRAs by frustrated executors and trustees, and be willing to follow their instructions to transfer the accounts, intact, to the estate or trust beneficiaries, please contact me through this website. I've got lots of business waiting for you. And if you want me to publicize your position on this website I'll do that too.
Meanwhile, executors and trustees: I've attached a sample form of a letter (from Appendix B of the 6th edition of Life and Death Planning for Retirement Benefits) illustrating how a fiduciary might instruct an IRA provider to transfer an IRA to the estate/trust beneficiaries. But if you are dealing with an IRA provider who will not carry out your instructions on this, let me know. I'll publicize them too!