We have a customer (“M”) who died in 2017 at the age of 53. M had an IRA that named one primary beneficiary and no contingent beneficiaries. The primary beneficiary died prior to M’s death and no other beneficiaries were named. The IRA documentation provides that if M dies with no beneficiaries, the IRA funds shall be paid to M’s estate. M’s relative (“J”) informed the bank that they were going to be the executor of M’s estate, but J died before this occurred. As far as we know, an estate has not been opened for M. The executor of J’s estate provided us with their letters of office and informed us that M’s IRA funds should be paid to J’s estate. Can you confirm that absent additional documentation, our bank should not pay M’s IRA funds to J’s estate? Also, how should we handle M’s IRA funds, since their estate has not been opened?

Based on these facts, we do not believe the executor of J’s estate is entitled to receive the funds in M’s IRA account without additional documentation establishing that J’s estate is the rightful beneficiary of M’s estate.

A designated beneficiary of an IRA must be designated the IRA’s beneficiary as of the date of the IRA owner’s death. Here, J was not designated as a beneficiary of M’s estate as of the date of M’s death. Since M had no living beneficiaries at the time of M’s death, and the IRA designated M’s estate as the beneficiary in such instance, the funds in M’s IRA account should be distributed in accordance with the rules for distributing M’s estate. The executor of J’s estate should produce documentation establishing that J’s estate is the beneficiary of M’s estate in order for the bank to distribute M’s IRA funds to J’s estate.

In the case where no estate has been opened for M, or the bank is not presented with a small estate affidavit for M, absent a court order, the bank may not be able to distribute the funds in M’s IRA account to J’s executor and ultimately may need to treat the funds in M’s IRA account as unclaimed property. According to the IRS rules, when an IRA owner dies before the required mandatory start date for receiving IRA distributions (age 70 ½), and where their beneficiary is not an individual, 100% of the IRA funds must be withdrawn by December 31 of the fifth year following the owner’s death. Since M died in 2017 and M’s estate is the IRA’s beneficiary, the IRA funds must be fully distributed by December 31, 2022.

If M’s estate is not opened to allow for the appropriate distribution to be made to the estate’s beneficiary, the relevant provision of the Illinois Revised Uniform Unclaimed Property Act requires that the IRA funds be reported and remitted to the Illinois Treasurer one year after the date of mandatory distribution following the apparent owner’s death. As noted above, since M did not reach the age of 70½, the date of mandatory distribution of M’s IRA will be December 31, 2022. Accordingly, if no one properly representing M’s estate claims the IRA funds – or the executor of J’s estate does not present proper documentation establishing that J’s estate is the beneficiary of M’s estate and is entitled to M’s IRA – your bank would be required to report and remit the funds in M’s IRA account to the Illinois Treasurer by December 31, 2023.

For resources related to our guidance, please see:

IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2018) (“Generally, the designated beneficiary is determined on September 30 of the calendar year following the calendar year of the IRA owner's death. In order to be a designated beneficiary, an individual must be a beneficiary as of the date of death. Any person who was a beneficiary on the date of the owner's death, but isn't a beneficiary on September 30 of the calendar year following the calendar year of the owner's death (because, for example, he or she disclaimed entitlement or received his or her entire benefit), won't be taken into account in determining the designated beneficiary. An individual may be designated as a beneficiary either by the terms of the plan or, if the plan permits, by affirmative election by the employee specifying the beneficiary.”)

IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2018) (“If the owner died before his or her required beginning date (defined earlier), and you are the designated beneficiary, you generally must base required minimum distributions for years after the year of the owner's death using your single life expectancy shown on Table I in Appendix B as determined under Beneficiary an individual, later. . . . If the owner's beneficiary isn't an individual (for example, if the beneficiary is the owner's estate), the 5-year rule (discussed later) applies.”)

IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2018) (“If you are the owner of a traditional IRA, you generally must start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date.”)

IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2018) (“The 5-year rule requires the IRA beneficiaries to withdraw 100% of the IRA by December 31 of the year containing the fifth anniversary of the owner’s death. For example, if the owner died in 2018, the beneficiary would have to fully distribute the plan by December 31, 2023. The beneficiary is allowed, but not required, to take distributions prior to that date. The 5-year rule never applies if the owner died on or after his or her required beginning date. . . . The 5-year rule applies in all cases where there is no individual designated beneficiary by September 30 of the year following the year of the owner’s death or where any beneficiary isn't an individual (for example, the owner named his or her estate as the beneficiary).”)
Illinois RUUPA, 765 ILCS 1026/15-202(a) (“When tax-deferred retirement account presumed abandoned. (a) Subject to Section 15-210, property held in a pension account or retirement account that qualifies for tax deferral under the income-tax laws of the United States is presumed abandoned if it is unclaimed by the apparent owner after the later of:

(1) 3 years after the following dates:

(A) except as in subparagraph (B), the date a communication sent by the holder by first-class United States mail to the apparent owner is returned to the holder undelivered by the United States Postal Service; or

(B) if such communication is re-sent within 30 days after the date the first communication is returned undelivered, the date the second communication was returned undelivered by the United States Postal Service; or

(2) the earlier of the following dates:

(A) 3 years after the date the apparent owner becomes 70.5 years of age, if determinable by the holder; or

(B) one year after the date of mandatory distribution following death if the Internal Revenue Code requires distribution to avoid a tax penalty and the holder:

(i) receives confirmation of the death of the apparent owner in the ordinary course of its business
(ii) confirms the death of the apparent owner under subsection (b).”)