The Livens Law Firm

IRA rules can make probate administration complicated

Many Texas residents have individual retirement accounts as part of their investment portfolios. IRAs are attractive to investors due to beneficial tax considerations. However, investors should be aware of tax rules when including an IRA in their estate. A recent ruling by the U.S. Tax Court details a complicated case involving an IRA involved in probate litigation.

A man in another state passed away in 2006, having specified in his will that most of his estate would be left to his wife. The estate included a traditional IRA and a vintage motorcycle. The funds in the IRA were frozen until the issue could be resolved after the man's son contested the will.

The probate court determined that the widow would pay the man's son a specified amount from the IRA funds and transfer the motorcycle to him. After the funds were unfrozen, she made the payment to the son and also took other distributions from her IRA. According to the settlement, the payments from the IRA were to be free of any tax. However, the widow received tax documents indicating that the distributions were taxable from her IRA.

The widow did not report the distribution as taxable income and later received a notice of deficiency from the IRS. She contested the decision in Tax Court. However, the court upheld the IRS ruling, and she was required to pay income taxes and penalties on the IRA distributions. The court maintained that though the widow had not received appropriate counsel during the litigation process, she was still liable for the taxes on the IRA distribution.

Texas families hoping to avoid lengthy probate litigation often seek counsel from experienced estate administration attorneys. A seasoned lawyer would help an individual understand tax implications when planning his or his estate. An adviser with a thorough knowledge of IRA rules could help those in similar situations minimize tax implications and avoid other complications with their estates.

Source: financial-planning.com, "When an inherited IRA becomes a tax nightmare", Ed Slott, Feb. 17, 2017

No Comments

Leave a comment
Comment Information
EMAIL US FOR A RESPONSE

Schedule A Consultation With An Attorney

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

2516 Harwood Road
Bedford (Fort Worth), Texas 76021

Toll Free: 800-569-2663
Phone: 817-545-3425 (FW)
Fax: 817-545-9847 (FW)
Map & Directions

14135 Midway Road
Suite G-250
Addison (Dallas), Texas 75001

Phone: 972-685-5202
Fax: 972-685-5206
Map & Directions

Livens & Reed

Free Initial Consultation | Se Habla Español

Bedford (Fort Worth): 817-545-3425 | Addison (Dallas): 972-685-5202 | Toll-Free: 800-569-2663