I have held some individual TIPS in my IRAs. While I might live to their complete term, I wonder if I am complicating the lives of those that will inherit the IRAs should my death precede the maturity of the bond. I have multiple beneficiaries. If this is an issue would it be better to split the IRAs that hold the TIPS?
I'd appreciate the thoughts of bogleheads on this.
Individual bonds in IRA of deceased
Re: Individual bonds in IRA of deceased
Its certainly not a problem for the beneficiaries; they just inherit an IRA with something in it, and the custodian figures out the annual RMD.
But it is a (slight) problem for the executor. He/she has to place a value on the individual bonds (based on market value on date of death, unfortunately not par value), and split the IRA into as many pieces as required. If there is also some funds in a MMKT or mutual fund, that part would be split unequally so that the total account value comes out the same; if IRA is all bonds then a few bonds ($1K par each) will likely have to be sold to make the division come out right. If the beneficiaries argue about the individual bond quality and who gets which ones, then more bonds will need to be sold to make the divided accounts equal.
But it is a (slight) problem for the executor. He/she has to place a value on the individual bonds (based on market value on date of death, unfortunately not par value), and split the IRA into as many pieces as required. If there is also some funds in a MMKT or mutual fund, that part would be split unequally so that the total account value comes out the same; if IRA is all bonds then a few bonds ($1K par each) will likely have to be sold to make the division come out right. If the beneficiaries argue about the individual bond quality and who gets which ones, then more bonds will need to be sold to make the divided accounts equal.
-
Crow Hunter
- Posts: 995
- Joined: Wed Jun 27, 2012 12:05 pm
Re: Individual bonds in IRA of deceased
I inherited individual bonds, MBS and UITs from my Mother last year.
I was the executor and it was no problem at all.
They were split evenly between my brother and myself. I had to take the individual valuations at the date of death into account for state inheritance tax purposes but other than that, the $ amount never came up again. Both of us got an even number of "units" of everything. Shares of mutual funds, MBS, bonds, cash, etc. independent of the actual value at the time of death.
For instance my Mother had ~$60k of a TVA bond at par value. Even though it was worth quite a bit more on the open market, it was split evenly $30k each to my brother and myself based on the par value (units).
The only real "issue" that I have run into is that the UITs are very thinly traded and cost quite a bit to sell so we have just kept them.
That shouldn't be a problem with TIPS though.
I was the executor and it was no problem at all.
They were split evenly between my brother and myself. I had to take the individual valuations at the date of death into account for state inheritance tax purposes but other than that, the $ amount never came up again. Both of us got an even number of "units" of everything. Shares of mutual funds, MBS, bonds, cash, etc. independent of the actual value at the time of death.
For instance my Mother had ~$60k of a TVA bond at par value. Even though it was worth quite a bit more on the open market, it was split evenly $30k each to my brother and myself based on the par value (units).
The only real "issue" that I have run into is that the UITs are very thinly traded and cost quite a bit to sell so we have just kept them.
That shouldn't be a problem with TIPS though.
Re: Individual bonds in IRA of deceased
The executor really has nothing to do with an IRA payable to designated beneficiaries other than to value the account for estate tax purposes. My experience in administering estates is that in nearly all cases it is preferable to liquidate the original assets and distribute cash, allowing for no risk to the beneficiaries, an easy distribution and enabling them to invest in assets appropriate to their needs.
Gill
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
-
Artsdoctor
- Posts: 4293
- Joined: Thu Jun 28, 2012 3:09 pm
- Location: Los Angeles, CA
Re: Individual bonds in IRA of deceased
You might want to rethink "multiple beneficiaries." One or two, maybe. But are you talking 5 or 6?
Anything's doable, but you're right to think about logistics.
Anything's doable, but you're right to think about logistics.