Why do I need to turn my inherited IRA over to the estate?
My mother had an IRA and named me as the beneficiary. I am now being told, from the executor of her will, that I need to turn the IRA over to the estate since my mother left all of her "Cash On Hand" to her grandchildren to be distributed annually. I am refusing to turn the IRA over due to my understanding that an account that has a beneficiary named does not pass through the will.
If in fact you are the named beneficiary of your mother's IRA, then the executor is wrong. Under no circumstances would you be required to provide the executor with the proceeds from the IRA. The beneficiary designation, assuming it names you directly, supersedes any provision in the will. Even if the will said I leave my IRA rollover or my IRA to my estate, the beneficiary designation takes precedence. I hope this helps and good luck.
It sounds like you are in the right here. The Will of a decedent only has power over the probate assets of the decedent, and the Executor only has power over those probate assets passing under the Will.
Assets that pass by beneficiary designation are not probate assets, and are therefore not subject to the terms of the Will. An IRA account is the most common example of this kind of asset, but other common examples are insurance policy and transfer on death accounts (so-called "TOD" accounts). These assets have a contractual agreement with the entity holding them (here, the custodian of the IRA) that require that entity to pay them out the beneficiary.
Even if your mother had specifically referred to the IRA in her Will, the beneficiary designation on the account would still have trumped that language. That didn't happen here: the "cash on hand" reference is a pretty vague term, and it doesn't sound as if there was anything in the Will that would have evidenced an intent by your mother to send those IRAs assets elsewhere.
Stick your guns.
You are correct and the executor of her will is wrong. An IRA is not “cash on hand” and goes directly to the named beneficiary. If you should cash in her IRA and hand it over to her estate, you would be forced to pay taxes on it on top of losing your inheritance.
If beneficiaries are designated for an IRA account, then upon the decedents passing, the funds would be distributed directly to the named beneficiaries (or beneficiary if just one person).
These funds would not be subject to probate nor would they need to distributed back to the estate (this could be the case if no beneficiary was designated). When a specific beneficiary is designated for an account, that supersedes what is written in a will or trust. It is possible for an executor or other heirs of an estate or trust to contest a beneficiary designation. However, it is difficult to contest and would only succeed in rare circumstances.
Stephen Rischall, CRPC
My understanding is that the named beneficiary on an IRA takes precedent over the directions given in a will. This arrangement would support you keeping the IRA. However, I'm not a lawyer and can't give legal advice. Also, "Cash On Hand" refers to readily accessible cash, and since IRA distributions are taxable, I would personally not include that in COH.
Adam C. Harding, CFP
For informational purposes only. Not to be considered investment, tax, or legal advice.