Let's suppose the IRA holder, we'll call him Tom, dies in 2008. If Tom was required to take a required minimum distribution (RMD) for 2008 (and did not withdraw that amount before he died) his beneficiaries are required to withdraw that amount by December 31 of 2008. The payer is required to report the amount under the beneficiary's tax identification number, and the beneficiary is required to include the amount in his or her income. Bear in mind also that the amount is calculated as if the IRA owner (Tom) had lived throughout 2008.
To Cite Treasury Regulation §1.401(a)(9)-5 Q&A 4(a). It states:
"If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee's death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee's death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee."
For more insight, read Avoiding RMD Pitfalls.
This question was answered by Denise Appleby