Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

My mother passed away in Feb 2013, she left a traditional IRA

which held all her assets...
My mother passed away in Feb 2013, she left a traditional IRA which held all her assets to her estate as beneficiary. Her will has 8 beneficiaries name with different % pay outs. I have found on line, private letter rulings where people have requested from the IRS to be allowed to issue inherited IRAs to each beneficiary. I have been trying to find out how to submit this private letter for a ruling from the IRS. By doing this each person would pay at their tax rate when they withdraw from the inherited Ira instead of paying at the estate rate which I believe is 39.6% tax. She lived in New Jersey and only has about $260,000 and was 91. We were told pay outs would be based on her life expectancy which is 3 years so we could spread withdraws over 3 years. I am the executrix and want to understand the best thing to do with out paying half of her estate to the government. I have talked to her accountant and attorney with no help, they don't seem to know the law. I have many expenses to pay which will be about $100,000 of the funds. So I need to get something done soon and emotionally need to put it behind me. I am hoping you can help me. Thanks Paula
Show More
Show Less
Ask Your Own Tax Question
Answered in 27 minutes by:
8/14/2013
Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3,153
Experience: EA, CEBS - 35 years experience providing financial advice
Verified

If the distributions are made to the estate and the estate passes those distributions through to the beneficiaries of the estate, then the distributions will be taxed to the beneficiaries at their respective income tax rates. The estate would not have to pay income taxes on the distributions. This would be accomplished by filing Form 1041 and giving individual Schedule K-1s to each beneficiary.

Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3,153
Experience: EA, CEBS - 35 years experience providing financial advice
Verified
Bill and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 4 years ago
So the 1041 is filing of estate taxes and then issue individual k-1 s to each beneficiary. Then the k-1 is used when filing individual returns for this year but we each have to take our full percentage as income this year correct ?
Is this process referenced in the IRS rules and regulations for the estate as beneficiary? If so where could I find it for back up? Or is this a way around the regulations? I just want to be sure in the event I was audited since I am responsible for the estate. Thanks

http://www.irs.gov/pub/irs-pdf/i1041sk1.pdf

The 1041 is to report income and pay income taxes on estate income, not estate taxes. If the income is passed through to the beneficiaries of the estate, then K-1s are given to those beneficiaries who then report the income on their individual tax returns.

 

http://livingtrustnetwork.com/forum/Probate-Issues/465-ira-payable-to-estate-estate-acting-as-pass-through.html

 

Ask Your Own Tax Question
Customer reply replied 4 years ago
I've been told IRAs were not past through funds which is a concern with the K-1, do these apply to IRA funds as opposed to capital gains?
With this'd easy solution, then why do people bother getting private letter rulings from the IRS to disburse funds to inherited IRAs for beneficiaries which pay out over the deceased life expectancy ?
Also the second link your sent for the forum does not work so I couldn't read that info.
Customer reply replied 4 years ago
Relist: Incomplete answer.
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 780
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
Verified

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

You really don't need to get a private letter ruling (PLR). There are already rules in place, and you can use existing PLRs to cover your situation if the fact pattern is similar enough.

 

If the trust is written to follow strict IRS guidelines commonly known as
"see-through" or "conduit" trust rules, the trust can be beneficiary without any big problems. Although the income-tax rates that trusts pay are generally higher than income taxes paid by individuals, your heirs can avoid paying the high trust rate if the trustee can pass all the IRA distributions out to the individual trust beneficiaries. So you need to be sure that, if the trust is named as beneficiary, and the trustee has the latitude to do this, the IRA distributions won't get trapped inside the trust. The beneficiaries can roll them into their own IRAs. That is assuming that the trust was written by an attorney who knows about trusts and IRAs.

 

If the trust is the beneficiary and does NOT pass the IRA through to the beneficiaries, the trust would have to draw down the IRA in installments every year over the life expectancy of the oldest trust beneficiary.

 

If the estate does take the distributions from the IRA, it is income to the estate, but the estate gets a deduction for any distributions that it makes. So if the estate drew down $80,000 from the IRA, but turned around and distributed all of the funds to the beneficiaries of the estate, the estate would get a deduction equal to the amount distributed, in this case $80,000. The estate would have no taxable income, and each beneficiary would be taxed at his or her own tax rate. The problem with this is that the distributions might be significant enough to cause the heirs to pay a higher income tax rate on their personal returns. So careful planning to keep everyone happy is a must!

 

I hope this helps answer your questions! If you have any more, please feel free to ask away! I will be happy to help! If you have found my answer to be helpful, please remember to rate me highly. I would appreciate it!

 

Again, thanks! Have a great week!

 

Roger

Ask Your Own Tax Question

I'm sorry that I didn't respond sooner but I did not have access to a PC.

Some people obtain private letter rulings in order to close the estate rather than to have to continue to make distributions to the estate over a long period and then have those distributions passed through to the beneficiaries. However, in your situation this doesn't seem necessary as the remaining life expectancy is short (which will permit you to close the estate sooner) and the amounts being distributed to each beneficiary are relatively small ($32,500 each) which may not push the beneficiaries into higher tax brackets. The distributions could either be made all this year, or a portion this year with the balance next year.

 

http://www.ataxplan.com/bulletinboard/ira_providers.cfm

 

Ask Your Own Tax Question
Ask Bill Your Own Question
Bill
Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3,153
3,153 Satisfied Customers
Experience: EA, CEBS - 35 years experience providing financial advice

Bill is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
What are the taxes rates 2016 for term gains in irrevocable
what are the taxes rates 2016 for long term gains in irrevocable trusts … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Are you familiar with income tax laws on business and
Are you familiar with income tax laws on business and personal returns? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Suppose my taxable income in 220,000 this year and the tax
Suppose my taxable income in 220,000 this year and the tax rate is X up to 200K, but Y for 200and over, do I pay Y on the full 220K or just that above 200K? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
For capital gains tax can a payment plan be set up? I took
for capital gains tax can a payment plan be set up? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Under current law a 100,000 taxable income pays $10,365 plus
Under current law a 100,000 taxable income pays $10,365 plus 25% of the amount exceeding $79,400 i.e. about $16,000. Under tax reform will the tax be $25,000? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What are tax rules for an inherited Roth IRA, GA, the
what are tax rules for an inherited Roth IRA JA: Since estate law varies from place to place, can you tell me what state this is in? Customer: GA JA: What documents or supporting evidence do you have?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Traditional IRA contribution - *Married taxpayers file MFJ
Traditional IRA contribution -*Married taxpayers file MFJ *One spouse covered by retirement plan, one is not *AGI will be over $ 200K for 2017 *Taxpayer that is not covered by retirement plan, contrib… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Where can I get the Federal income tax regulation? Where can
Where can I get the Federal income tax regulation? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Adjusted individual tax return for 2014(Iowa),says no
Adjusted individual tax return for 2014(Iowa),says no response to letter of inquiry,disallowed health insurance. deduction.says my wife and I owe$600.00.she called # and was told to show proof of insu… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Estate capital gains tax rate for 61, single, unable to
estate capital gains tax rate for 61, single, unable to work, is claimed as a dependent form sister,only income collects $500 month stipend from gov., which pays for health insurance and meds. is gett… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
A Form 1041 is filed for a Credit Shelter Trust & shows a
A Form 1041 is filed for a Credit Shelter Trust & shows a loss on the Taxable Income line (Page 1, line 22). Is this loss carried forward?… read more
abci168
abci168
Principal
27 satisfied customers
I received a Schedule K-1 (Form 1041) from my aunt's estate
I received a Schedule K-1 (Form 1041) from my aunt's estate from which I received a distribution. In Part 3, Beneficiary's Share of Current Year Income, Deductions, Credits, and Other Items, there is … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
What is the income tax rate if it is not withdrawn from the
Hi! What is the income tax rate if it is not withdrawn from the LLC? The owner has not withdrawn any balance from the business all the amount reinvested into the business. Thank you!… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
Second opinion] Has the tax rate in Peru on capital gains
Second opinion] Has the tax rate in Peru on capital gains for non residents recently been changed? I heard it is now 5% and no longer 30%.… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Has the tax rate on an inheritance for non residents
Has the tax rate on an inheritance for non residents recently been changed? Iv'e been told it is now 5% and no longer 30%.… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
Is a tax refund on a decedent's individual tax return
is a tax refund on a decedent's individual tax return includible in the decedent's estate (Form 706) AND/OR the decedent's estate income tax return (Form 1041)? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Schedule K-1 Form 1041: Irrevocal Life Insurance Trust: Tax
Schedule K-1 Form 1041: Irrevocal Life Insurance Trust: Tax asking if I disposed of my entire interest? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a schedule K-1 Beneficiary's share of income,
I have a schedule K-1 Beneficiary's share of income, Deductions, Credits, etc. Line 5 shows 31,171, line 14 code E shows 1092, line 14H shows -30186. Do I owe tax on 31171 or just 1092. … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x