Client Dilemma

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3rdyrp2's picture
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Joined: 2008-11-13

This probably isn't the best thread to ask this question, subject-wise, but I figure it has the most traffic coming through it so hopefully I can get someone who's had experience with this dilemma.  Story:
 
Client has parents who are pretty old.  Dad has about half a mil in some IRA CD's and mutual funds, and mom has $100k or so in an IRA CD.  They are both the primary beneficiary of each others accounts, with the living lawful children being secondary.  Last year, Dad dies.  This year, Mom dies.  Unknown to me until just now, Mom did not act on Dad's accounts before she died.  So according to the 6-7 banks holding Dad's accounts, Mom is still the beneficiary because 1. She didn't go to claim the money as part of her inheritance, and 2. No one ever sent the bank a death certificate letting them know Dad died. 
 
Client and I called the companies last week to ask them what docs we need to gather up and send over to settle both of the parents estates, and from what it sounded like their only option is to have Mom's estate inherit an inheritance IRA and from there however Mom has her will/trust laid out is how her estate will be diviied out.  Only problem is that they told us that an IRA can not be converted to an "inherited" IRA twice, so once it goes to the mom's estate, the only next option is to distribute it to HER beneficiaries, making everything taxable to my client.  Has anyone ever experienced this type of thing, and if so were there any kind of tricks that their estate lawyer pulled to cause no taxes?  Sorry for the long post, but if we can get this figured out for the client it will be VERY good for client AND advisor:-).

3rdyrp2's picture
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Joined: 2008-11-13

I'm not trying to give advice, I just want to know if its possible for my client to get the money as an IRA instead of a qualified distribution.  Client said she'll have co-client husband talk to the estate attorney, which means I may hear back tomorrow from her, or in 3 weeks. 

3rdyrp2's picture
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Joined: 2008-11-13

I'm just wanting to have a glimmer of hope until the client calls with their findings.

Amp2Indy2006's picture
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Joined: 2008-08-13

It is what it is, and you cannot provide legal advise.  If mom did not have an attorney, then provide some choices you trust for your client to visit with you sitting next to them.  You can be the champion without getting your bottom in a crack by attending these meetings and taking charge.  The last role you play ever is providing "specific" legal or tax advice implied or written.  Ask your OSJ or call Minny.

B24's picture
B24
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Joined: 2008-07-08

Inherited or "stretch" IRA's can be passed to two generations.  The attorney should know this.  However, many banks and financial institutions don't allow this (and they are not legally required to do so).  So the bank may have it's own set of rules.
 
Do this - get WELL VERSED on inherited IRA rules.  You could set up an inherited IRA for the deceased Mom at your firm (NOT a rollover IRA in her name), and then transfer the IRA to your firm (in the Dad's name, NOT the Mom or child/client).  The Mom will be the original beneficiary, then then the children became beneficiaries.  This might get complicated, and you will need some additional legal paperwork, as you are setting up accounts for a deceased owner.  Then YOUR firm can allow the secondary beneficary inherited IRA.  But MAKE SURE you follow the rules to the "T".  You must register the accounts exactly right, or it all becomes taxable.  I won't get into all the details (I've done several of these before), as your firm should walk you through the process, but it CAN be done.  But when dealing with accounts at another firm, the client should have their attorney/CPA advise them, NOT YOU.
One other complication may be RMD's that were due in the Dad's accounts that Mom should have inherited, as well as if there are multiple beneficiaries (SLE is based on oldest beneficiary).

3rdyrp2's picture
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Joined: 2008-11-13

B24 wrote:Inherited or "stretch" IRA's can be passed to two generations.  The attorney should know this.  However, many banks and financial institutions don't allow this (and they are not legally required to do so).  So the bank may have it's own set of rules.
 
Do this - get WELL VERSED on inherited IRA rules.  You could set up an inherited IRA for the deceased Mom at your firm (NOT a rollover IRA in her name), and then transfer the IRA to your firm (in the Dad's name, NOT the Mom or child/client).  The Mom will be the original beneficiary, then then the children became beneficiaries.  This might get complicated, and you will need some additional legal paperwork, as you are setting up accounts for a deceased owner.  Then YOUR firm can allow the secondary beneficary inherited IRA.  But MAKE SURE you follow the rules to the "T".  You must register the accounts exactly right, or it all becomes taxable.  I won't get into all the details (I've done several of these before), as your firm should walk you through the process, but it CAN be done.  But when dealing with accounts at another firm, the client should have their attorney/CPA advise them, NOT YOU.
One other complication may be RMD's that were due in the Dad's accounts that Mom should have inherited, as well as if there are multiple beneficiaries (SLE is based on oldest beneficiary).
 
NICE...although how do you transfer an account from one institution to another for a dead person?  If I remember correctly once the bank/brokerage knows of someones death they put a freeze on the account until everything is settled.  Does the executor sign on behalf of said dead guy?
 
For those kindly making sure I don't get myself in trouble, I'm not going to my client with any of this.  I'm just seeing what to be prepared for and be ready for any kinds of turns this situation takes.  It'll be hard once I get word from the clients estate attorney on what to do to go back at him with "Well I heard on a forum that if you did this, they won't have to pay any taxes."  This is for my peace of mind only.  Thanks.

B24's picture
B24
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Joined: 2008-07-08

That's the big rub in all of this.  I have never transferred the inherited IRA before the re-registration process was complete with the beneficiary on the decedant IRA account.  In other words, I have transferred decedant IRA's to my branch, and I have set them up for clients/beneficiaries that have died while in my branch, but I have yet to transfer a decedant IRA for someone who's beneficiary died prior to the re-registration.  So that's why I said there may be additional legal paperwork involved (POA's, etc.).  Your B/D should be a good resource for you.  I have had two of these come up in the last month, in addition to processing of two trust accounts, and the Estate Processing and Account Service departments at Jones walked my through the whole thing, step by step.  All I needed to do was print out the forms they gave me, and have the clients sign them (well, it was a little more involved than that).  Just start by calling your estate processing department (just to get educated), then instruct the client to get an attorney & CPA - fast.

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