[WSBAPT] Non pro rata allocation of taxable income to beneficiaries

Thu Apr 2 23:27:56 PDT 2015

I was thinking along the same lines, although splitting the IRA is the safer approach in my opinion.
Withdrawing the IRA assets and distributing the cash to the lower income beneficiary might accomplish what you are trying to do. You would need to confirm that the IRA withdrawal results in DNI. You may be able to do it all in one year if the estate has minimal income otherwise.
This plan creates a problem however.  This plan is only fair to the income beneficiary if his after tax share is equivalent to the others' pre-tax shares. How do you determine an appropriate adjustment? What if his marginal tax rate is higher (or lower) than expected? Can  the PR even consider the income tax liability when dividing the estate?

John Creahan
Cairn Law, PLLC
206-621-5848
Sent from my phone
________________________________
From: Mark Higgins<mailto:markthiggins at gmail.com>
Sent: ‎4/‎2/‎2015 5:22 PM
To: WSBA Probate & Trust Listserv<mailto:wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Non pro rata allocation of taxable income to beneficiaries

Eric-I don't think your desired selective allocation is allowed.  Have you thought about making a distribution of the IRA dollars out to just the one beneficiary this year, and then distributing out the others' shares next year?  Since estate income in 2015 follows the distributions in 2015 on the K-1s you might have succeeded in putting the IRA income on just the one beneficiary.  You'd want to double check with a cpa whether this would work.

Mark

On Thu, Apr 2, 2015 at 5:04 PM, Eric Nelsen <Eric at sayrelawoffices.com<mailto:Eric at sayrelawoffices.com>> wrote:
Marcus--Thanks, I have never heard of this--I'm definitely glad to hear it.

In this case, though, the heirs are okay with getting the cash; we're just trying to minimize the tax hit by selectively allocating the income pass-through to low-income beneficiaries. Any thoughts on whether that's allowed?

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092<tel:206-625-0092>
fax 206-625-9040<tel:206-625-9040>

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>] On Behalf Of Marcus Fry
Sent: Thursday, April 02, 2015 4:28 PM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] Non pro rata allocation of taxable income to beneficiaries

Eric:
I disagree about “no rollover options.”  First, it’s technically not a rollover, as rollovers are only for spouses.  However, many financial institutions permit the PR to instruct the establishment of inherited IRAs in each beneficiary’s name.  Natalie Choate’s website list some good companies. http://www.ataxplan.com/bulletinboard/ira_providers.cfm

I suggest moving the IRA to another institution as suggested by Choate if the one you are at will not cooperate.

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
Adoption Attorney*
P.O. Box 1689
Yakima, Washington  98907
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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Thursday, April 02, 2015 3:57 PM
To: WSBA Probate & Trust listserve (wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>)
Subject: [WSBAPT] Non pro rata allocation of taxable income to beneficiaries

Estate has four equal beneficiaries. Decedent had an IRA that paid directly to Estate, so no rollover options.

One of the beneficiaries is in a very low tax bracket, and all four beneficiaries agree that they'd like all the tax liability for the IRA allocated to that one beneficiary. (There's enough other cash in the estate to allow complete distribution of the IRA to one and make compensatory distributions to the other three of untaxed inheritance dollars.)

Is that allowed? So the Estate would do a tax return and issue K-1s, allocating all income liability to one out of the four beneficiaries, and none to the other three?

Any idea where I would look for the governing rule? IRS Code or Regs I would guess, but not sure where...

Sincerely,

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092<tel:206-625-0092>
fax 206-625-9040<tel:206-625-9040>

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Mark T. Higgins
Mark T. Higgins, P.C.
P.O. Box 57
Darrington, WA 98241
206-491-2420
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