Nominee Form 1099-R

[TXEA]

Facts:

1.Mom Died

2.Daughter A and Daughter B named as beneficiary of IRA and on file at the bank.

3.Three months after mom died, the bank knowing mom had died and knowing there were named beneficiaries made check for RMD out to Mom

4.Since IRA had named beneficiaries on file, the income can not be reported by Estate and paid after death so mom can't report on Final 1040.

Question

Anyone see a problem with a nominee Form 1099-R from mom to daughters?

[BOB W]

Who cashed the checks made to the Mom after her death?

Never heard of a Nominee with a 1099R. Get to the bank and get it straighen out.

[TXEA]

I have never heard of a Form 1099-R issued as nominee either. No check was issued. The bank electronically moved the money from IRA to the mom's checking.

The bank is not interested in changing anything.

I think I am just going to show it on mom's final 1040, then back it out with an explanation. The daughters are responsible and will report their half on their personal returns. They will have to show as other income to avoid an e-file rejection.

But, if it ever comes up, we can show that it was reported by who should have received the proceeds from the IRA.

[Burke]

It is amazing how often this happens. I have one of the same circumstance. The bene's were the children, the bank was the IRA custodian, and THEY KNEW the bene's were the children, and still paid the RMD after the TP died and put it into her bank account! I'd read them the riot act. But there really is no other way to handle it, unless you do an estate tax return Form 1041.

[TXEA]

Even if doing Form 1041, the account is not part of the probate estate since beneficiaries were named, so it would not go on the Form 1041.

It is not a probate asset when the beneficiaries are named.

I agree - read them the riot act.

[Burke]

No, it is not part of the estate for probate purposes. But if the monies were received by the estate, it could go on the tax return then pass through to the bene's. It's going to be fully taxable either way. It should be paid out to them immediately after receipt. If there is no other income to require a 1041 be filed, then just do it like you originally said.

[TXEA]

I understand your distinction...point well made. However, it is hard to make something right that was messed up in the first place. This income should not be on the Form 1041 given the beneficiaries on file.

The only logic to put on Form 1041 is IRD received by the estate, but it should not have received it in the first place. Making two wrongs is the way I interpret this whole process.

[Burke]

The only logic to put on Form 1041 is IRD received by the estate, ......

And it can be treated as such. But there is no sense in doing a 1041 if that is the only item which needs to be addressed and all other assets passed outside the estate.

This problem arises when the deceased's checking account is left open to pay last expenses. It should be closed immediately after death and an estate account established with the transfer of funds. In the OP, it was stated that the RMD was made three months after Mom died and electronically transferred into "her" checking account.

Apparently there is no surviving spouse? So a will was presented to the probate court. They usually issue very clear instructions that this is to be done. It's amazing how many people don't "bother" because their name(s) are on the account and they don't see the need.

[TXEA]

Burke, I appreciate your comments. Just don't like messes that are avoidable.

The return is done. The bene's are reporting the income (RMD) on their personal returns. I told them it is the closest thing to reporting it correct based on how it SHOULD have been done.

Either way, the tax is being paid and at a higher rate than the deceased would have paid.