Friday, July 24, 2015

Required Minimum Distributions in the Year Someone Dies

When a beloved family member and/or friend dies, there are many tasks that should be addressed to make sure that the decedent’s wishes for transfer of his or her assets are honored: those involving legal matters and the transfer of ownership of assets, (b) those involving clothing, furniture, and personal property, and the like for which there is no deed or title, (c)  those involving cars, motorcycles, boats, motor homes, and the like for which there is a title or certificate of ownership, (d) those involving property held by a living person and the decedent “as joint tenants with right of survivorship” or where the decedent has an account that is “payable on death” or “transfer on death” to a living person, and (e) those where you are named as a beneficiary (for example, life insurance, an IRA, a 401K).  In all of the flurry of activity, there is one aspect of IRAs that sometimes is not thought of until late in the year:  If the decedent was over 70 ½ and already receiving Required Minimum Distributions (RMDs) during life, you should check to see if an RMD was received before death.

If the decedent had not received an RMD before death, arrangements should be made for that distribution to occur, hopefully, prior to the end of the calendar year.  First, there needs to be someone who is authorized to give instructions to the custodian of the IRA.  If there is no beneficiary named to receive the IRA upon death, then the court-appointed executor (if there is a Will) or an administrator (if there is no Will or if there is no one named as executor who is able to serve) may authorize the delivery of the RMD.  (If the IRA is payable to a beneficiary other than the executor, that beneficiary may be able to give directions for distribution and will have to provide a death certificate to do so.)  The penalty for failure of the RMD to be distributed before the end of the calendar year in which the decedent died is 50% of the required RMD.  50%? 

Yes.  But, there may be an exception that applies.  Take a look at IRS Form 5329 “Additional Taxes on Qualified Retirement Plans (Including IRAs) and Other Tax-Favored Accounts”.  The IRS can grant an exemption from the 50% additional tax if the shortfall in the proper distribution is “due to reasonable error” and “reasonable steps to remedy the shortfall” are being taken.  For example, if no executor has been appointed in time to authorize an RMD before December 31 (of the year in which the decedent died) and an executor is appointed and able to request a distribution early in the next year, those circumstances are likely to be deemed to be both “due to reasonable error” and “reasonable steps” to make sure the RMD is made as quickly as possible.  In the past, the taxpayer was required to pay to the IRS the 50% penalty (additional taxes) and request both a waiver and refund.  Now, the taxpayer is not required to submit the additional taxes and request a refund.  However, until the IRS grants the waiver, the additional taxes may need to be paid and the taxpayer may want to keep on hand an amount to pay the IRS should the waiver not be granted. 

Kathleen Ford Bay

Friday, July 3, 2015

Texas Increases Allowances for Surviving Spouse and Children

Hooray for modern times! As part of the new Texas Estates Code, the Texas Legislature finally got around to increasing various exemptions and allowances for surviving family members.

Section 102.004 of the Texas Estates Code clarifies that the homestead of a decedent who is survived by a spouse or a minor child is not liable for the payment of any debts of the deceased’s estate, other than certain debts which may be secured by that homestead under the Texas Constitution – essentially, purchase money or home equity liens, ad valorem property taxes, certain materialmen’s liens, an owelty of partition, or a reverse mortgage.

Effective January 1, 2014, Chapter 353 of the Texas Estates Code sets new amounts for certain allowances that may be claimed by a surviving spouse or certain children of the deceased, prior to payment of any creditor’s claims.

Under Section 353.053, in place of a homestead under Section 102.004 (for persons who lease or otherwise do not have a suitable homestead), qualified survivors can request that the probate court set aside an allowance up to $45,000 – previously, the maximum allowance in place of the homestead was $15,000. 

In lieu of any exempt personal property, the survivors can also request the probate court set aside an allowance up to $30,000 – the previous cap on this allowance was $5,000. 

These two allowances are in addition to the “family allowance” that may be requested under Section 353.102 of the Texas Estates Code for the maintenance of the surviving spouse, minor children, and any adult incapacitated children for one year from the date of the decedent’s death. 

Effectively, the Texas Legislature now permits qualified survivors to set aside up to $75,000 (versus the previous $20,000), as well as a “family allowance” when necessary, to help provide for their care without the fear of such funds being seized by the deceased’s creditors. 

By: Cynthia W. Veidt,