Who takes RMD on a disclaimed non compliant KEOGH?

Technical topics regarding tax preparation.
#1
irc162  
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Taxpayer's husband (TPS) died in 2018. At time of death, TPS had a KEOGH plan with a value of $25K. Plan was created in 2000 when TPS received a distribution from the KEOGH held by his professional partnership (the partnership closed and KEOGH funds were distributed). TPS rolled the $300K he received into a new KEOGH at a brokerage. The original brokerage application completed by TPS at the time of the rollover was incomplete. Boxes were left blank. AN EIN was not obtained. Subsequent requests by brokerage that TPS sign plan updates and correct original application were ignored by TPS. TPS did, however, take most of his required RMD's. Two RMD's were overlooked and waiver requests were included with his returns.

The 2018 RMD was taken before death. On advice of her legal counsel, TP (my client) disclaimed the KEOGH in favor of the secondary beneficiary, TPS's son by a prior marriage. TP's attorney notified the brokerage of the disclaimer. When the son attempted to roll the funds into an inherited IRA, the brokerage said they could not do this until plan was brought into compliance. The sent the paperwork to the TP (who is the executor of TPS's estate).

The attorney insisted that the brokerage handle and absorb the cost of taking the plan through the IRS Voluntary Correction Program. After almost of year of back and forth between her and the brokerage, the brokerage firm agreed to absorb the cost, but TP (as executor) must act as adminstrator and complete and sign the paperwork necessary to update and correct the plan and submit a request to the IRS Voluntary Correction Program. The attorney insists that the brokerage must do this, or failing that, the adult son. This issue remains unsettled.

Meanwhile, the 2019 RMD has not been taken. The son cannot take it because the KEOGH plan was never transferred to him by the brokerage. The attorney has indicated that TP has no responsibility to take the RMD. Attorney says she is not concerned about potential penalties because they will be fairly small (plan is only worth $25K).

So who is responsible for the RMD? I am not sure what if anything to tell my client. Although she is acting on the advice of her legal counsel, I am wondering if I have an obligation to remind her that someone should be taking an RMD. TP has not discussed this issue with me directly---I have received this info from the attorney, who seems to want my approval for her actions. So far, I have declined to give an opinion, saying this is a legal matter. The attorney told me that she mentioned to the client that she discussed this with me. That makes me uneasy. I do not necessarily agree with the attorney's actions in this matter. I am wondering if I need to go on record with the client, even though she has not broached this issue with me.
 

#2
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You've not provided a clear opinion on the matter (smartly, IMO) to the attorney.
As a member of TP's professional team, it's not uncommon to speak directly with the other professionals. I assume you've not been engaged directly by the attorney. Given that, I would consider it wise to document (either letter or email) your conversation(s) and provide this to the client.

Since the attorney seems to be in the lead, I would probably defer to her in my letter careful not to suggest she's operating out of bounds. Something short and to the point...
"To ensure clear understanding of a complex situation, I feel it is prudent to share my opinion or lack thereof on the proper actions necessary...this is a complex situation...my research suggests, etc...."
~Captcook
 

#3
sjrcpa  
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I don't know about the RMD, but your client is being asked to execute the Keogh paperwork in her capacity as Executor. That is entirely proper.
 

#4
irc162  
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CaptCook wrote:You've not provided a clear opinion on the matter (smartly, IMO) to the attorney.
As a member of TP's professional team, it's not uncommon to speak directly with the other professionals. I assume you've not been engaged directly by the attorney. Given that, I would consider it wise to document (either letter or email) your conversation(s) and provide this to the client.

Since the attorney seems to be in the lead, I would probably defer to her in my letter careful not to suggest she's operating out of bounds. Something short and to the point...
"To ensure clear understanding of a complex situation, I feel it is prudent to share my opinion or lack thereof on the proper actions necessary...this is a complex situation...my research suggests, etc...."
I

Thank you. This is helpful. And yes, I agree with SJRCPA that it is entirely proper for TP to execute the documents as executor----especially since that would have led to a resolution of this issue. It has been going on for a little over a year. I imagine the legal fees related to the issue are now more than the value of the KEOGH account. Whie TP is still recovering from the death of her husband, she may be clearer sighted at some later date and have concerns about how this matter was handled. For that reason, I would like to stay as far away from this issue as I can while still fufulling my responsibilities to the client.
 

#5
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irc162 wrote:I imagine the legal fees related to the issue are now more than the value of the KEOGH account.


I was wondering about that given the amount - the tax on a $25k distribution could be less than legal fees to sort through years of potential non-compliance. It even seems possible the account stopped being a Keogh at some point (or never was one) and who knows what sleeping dogs that would wake up.

Has anyone looked at the plan that's in place now to see what it says about RMDs, and a non-spouse beneficiary? If it stays un-amended too long after the DOD it may mean sticking with old/adverse rules governing distributions.
 

#6
Doug M  
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The value of the account is $25,000. Started with an FMV of $300,000 and is now worth $25,000. Am I right so far?

RMD is negligible. Maybe $300. When taxpayers' grandson finally gets legal custody of the account, take the RMD's, report on tax return in year taken, file 5329 with request of abatement. 2018 is non-issue since deceased took 2018 RMD. Mountain out of a molehill? Get somebody to file the paperwork.

The owner of the account has been taking RMD's for quite a while. EIN is a non issue. There seems to be no legal question as to the disclaimer being legit.
 


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