Executor Knowledge of IRA Assets

• A beneficiary may file a death claim on her own without ever speaking with the executor. This is one of the benefits of avoiding probate with an IRA. Even if the executor never has to do anything to execute the beneficiary designation on the IRA, the executor must know the value of all IRA assets at the time of death. Executors must include the value of the estate in the total estate to determine estate transfer taxes. As of 2011, any estate over $5 million must pay a 35 percent federal transfer tax. State transfer taxes vary and may increase the total estate tax liability. The beneficiary, however, is not required to pay her portion of the estate taxes from the IRA value.
  
  

Finding Beneficiary

• If an executor has an IRA assets listed but does not have the beneficiary designation, he is obligated to contact the IRA custodian and determine who the rightful heir is. Once he has the beneficiary information, he is required to notify the beneficiary of his inheritance. The executor can not claim the death benefit on behalf of the beneficiary. The one exception is when the executor is the legal guardian of a minor beneficiary.
  
  

Estate as Beneficiary

• It is entirely possible that an IRA owner doesn't name a beneficiary or simply lists his "estate" as the rightful heir. It is also possible that the named beneficiary dies prior to the IRA owner and an update is never made to the account. If the estate or trust is named as the beneficiary or there is no living heir, the executor must liquidate and distribute the IRA assets based on the final trust or probate orders. When no natural person is named as the beneficiary, the opportunity to take distributions over time is not allowed.
  
  

Other Considerations

• When a natural person inherits an IRA, she is given several distributions options. Some options help reduce the income tax burden paid at any one time. On top of estate transfer taxes, the beneficiary is responsible to add any distribution to annual gross income. Taking a lump sum distribution adds the whole IRA value the year after the death. The IRS allows beneficiaries to spread the distribution over five years or to roll the IRA into a beneficiary IRA where minimum distributions are taken annually. These options reduce the one-time tax hit. Leaving the IRA to the estate nullifies these options.