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September 18, 2001
My mother's estate is the beneficiary of her IRA, which was then given to a trust for which I am the trustee. My sister is disabled and I would like to pay out the IRA balance to her over her lifetime. Can I do this?
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Q: My late mother had an IRA that named her estate as
the beneficiary. In her will, the estate was "bequeathed, given and devised to the
Trustee of her revocable living trust." My sister and I are each 50-percent
beneficiaries of the trust. I am both the trustee of the trust and personal representative
for the estate.
My sister is disabled and I would like to provide her
with steady income. Can the IRA balance be paid out to my sister over her lifetime?
A: I consulted with George Coughlin, a CFP based in
Walnut Creek, Calif., to help answer this question. Coughlin specializes in IRA
distributions and publishes the Web site iraplanning.com
The news is mixed, according to Coughlin. If your mother's
estate was the sole, named beneficiary of her IRA, you won't be able to take the balance
of the IRA over your sister's lifetime. But that doesn't mean your ability to stretch out
the IRA distributions is lost. You should be able to, but it will be over a shorter period
of time than you might otherwise have had.
Additionally, this answer assumes that your mother died in
2000 or 2001 and you and your sister are able to utilize the new, simplified IRA
distribution rules issued by the IRS earlier this year.
One piece of information that would have been helpful to
know was your mother's age at death. How long you are able to stretch out the
distributions depends on whether your mother had reached her required beginning date (RBD)
prior to death, Coughlin said. The RBD is the date upon which your mother is required by
the IRS to begin to take withdrawals from her IRA. The required beginning date is April 1
of the year after she turned age 70ý. No matter, here are the answers in both cases
— if she died before her RBD, or on or after her RBD.
If your mother died before reaching her RBD you may
be able to draw out the money over a five-year period ending no later than Dec. 31 of the
year that contains the fifth anniversary of the date of death. The only reason you
wouldn't be able to do this is if the IRA agreement requires distributions over a shorter
period of time. Check with the IRA custodian to find out.
If your mother died on or after her RBD , you may
withdraw the IRA benefits over the remaining years of her life expectancy, calculated
using a single-life expectancy based on your mother's age on her birthday in the year of
death. The life expectancy is then reduced by one year for each year thereafter. You can
find the appropriate IRS life expectancy table in Publication 590, Individual
Retirement Arrangements.
The fly in the ointment in your situation is that your
mother named the estate, not an individual or individuals, as her IRA beneficiary.
Estates don't have a life expectancy; individuals do. This means you have to withdraw the
money all at once, in a lump sum, if your mother was 70ý or older when she died.
Had she named an individual as the beneficiary, that
individual would have been able to draw out the money over his or her life expectancy,
providing that person began taking distributions by Dec. 31 of the year after the year
your mother died. If your mother died in 2001, the first distribution would have had to be
taken by Dec. 31, 2002.
Ted Benna, creator of the first 401(k) retirement savings
plan, will answer your most intriguing questions every Tuesday. With over 30 years of
experience as an employee benefits consultant, Ted is a nationally recognized expert on
benefits issues. He has authored two books, Helping Employees Achieve Retirement Income
Security and Escaping the Coming Retirement Crisis, and is President of the
401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and
participants. His articles and comments have appeared in numerous publications, including The
New York Times and The Wall Street Journal.
 Read Ted Benna's Biography
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The information provided here is intended to help you understand the general issue and
does not constitute any tax, investment or legal advice. Consult your financial, tax or
legal advisor regarding your own unique situation and your company's benefits
representative for rules specific to your plan.
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