Inherited IRA — STOP your brother from a huge mistake!!

Terry:
l recently ran into a situation which you may like to write about in your column. Many people may not be aware of this issue with inherited IRAs. My Mother passed at the end of last year. She had various IRAs with the big mutual funds. I was not aware I was the beneficiary of one of the IRA’s and I was sent paperwork to have it transferred to my name. My brother is the executor of the will and he has a lawyer and it is working its way through probate. Now in order to fulfill the wishes of my Mother’s will each of the three people get a certain percentage of her estate. This means I have to liquidate the IRA left to me and put it in the “big pot” of money to be distributed. The government is going to get 32% of the IRA I have to liquidate and in addition it pushed my wife and I into a higher tax bracket for all of our income. So we are going from about 22% to 32%. My brother is liquidating two other large IRAs and I can only imagine the tax hit on those. We had our will set up the same way and after seeing this train wreck we are immediately going to redo our wills and get with each IRA we own to setup percentages going to our heirs directly and exclude them from the wills. I had no idea I had to liquidate the entire IRA I inherited to fulfill the will. I understand inherited IRAs need to be totally liquidated in 10 years which would be fine. Over 10 years it would not push into a higher tax bracket and I could manage it with my other IRA’s. That is actually four people in the will if you add in Uncle Sam getting his share!!!!! More people should be aware if the tax consequence of how their will is structured.