IRA/Anuity Inheritance

[RayT]

Clients mother (window) recently deceased and her 50 y.o. son (client) is the sole beneficiary of her IRA and Annuity. Mother was 85 y.o. at death. Unfortunately, there are 3 additional siblings and the mother's wishes were to distribute equally her IRA/Annuity to all four children. I assume the sole beneficiary must include the entire amount on which taxes were deferred in his 2012 tax return, for which he will receive a Form 1099-R. I don't know how the form will be coded. It appears his only choice is to pay taxes on the full amount and deduct the appropriate percentage from each of the four sibling's share with regard to the increase in taxes due to the Form 1099-R. Do I have it correct? Is there anything else I should be aware of? Thanks for all comments.

[John of PA]

That sounds correct to me. This is actually a gift from one sibling to the other 3 as the will has no legal bearing on a non probate asset like an IRA or an Annuity. So it the amount going to each of the 3 siblings is over 13,000, the donor has to file a 709 gift tax return and utilize part of his lifetime gift tax exemption.

[Roland Slugg]

Your client has several other options that you, apparently, are not considering. I suggest that you recommend to your client that he consult with a CPA or other qualified tax professional, or with a CFP.

[S T]

Who is beneficiary on IRA/Annuity Contracts ???

Is there a Trust/Estate involved?

What does decedent's Will state ?

Decedent's wishes might not have been "spelled out" - "conveyed" correctly - on some of the actual legal documents - maybe more "verbal" and not remembering what the original IRA/Annuity Contracts were listing as a "Beneficiary" My understanding is that IRA/Annuity Account Beneficiary takes precedent and would be a "legal" payout as designated.
Need to look to the legal documents first, then the tax issues.

Roland, while you always give great advice and solutions - I am surprised you did not offer any on this thread.

Sandy

[Kram BergGold]

An Option

I agree, the stated beni has to take the full amount, however the beni could do a direct transfer to a inherited IRA and then take RMD's every year and gift 1/4 to each of the siblings. This might keep the taxes down and it will probalby avoid having to file a 709.

[Burke]

You state Mother's wishes were to distribute to 4 children. However, even if this was stated in her will, it has no legal bearing, since it is not part of the probatable estate. She apparently designated only one bene on the contract with the insurance company. And it goes to him. If he decides to split with his siblings, it will be outside of the will and the estate, voluntary on his part, taxable only to him. He will get the 1099R each year, may be able to designate his own bene on the contract in some circumstances, and the balance remaining at his death (if any) goes to his heirs/estate. Which may not be his siblings. If he divides the full amt -- or the yearly payout amt --between the other 3 siblings, he should take care to calculate the federal and state taxes he will incur and reduce their portion by their share. If he wants the remaining balance (if any) to be divided among his siblings at his death, he should take care to make sure it is payable to his estate, and deal with this issue in his own will.