What happens to my SDIRA if I pass away?

If you pass away while holding a Self-Directed IRA (SDIRA) with American Estate & Trust (AET), your account will be handled in accordance with your beneficiary designations and applicable IRS rules. AET ensures the process is compliant with tax laws and your designated wishes.

Designated Beneficiaries

The first factor that determines how your SDIRA is handled upon your death is who you have designated as your beneficiaries. You can designate one or more beneficiaries, including individuals, entities, or trusts. It’s essential to keep your beneficiary designations up to date to ensure they reflect your current intentions. If no beneficiary is designated, the account will go to your estate, and the distribution will be subject to probate, which may delay the process.

Steps After Your Passing

When AET is notified of your death, the following steps will be required to proceed with the account’s transfer to your beneficiaries:

1. Death Certificate – An original death certificate must be provided to AET.
2. Beneficiary Documentation – Your beneficiaries will need to submit documentation, such as proof of identity, along with any other forms AET requires to initiate the distribution process.
3. Tax Reporting – AET will generate tax documents for your beneficiaries, such as the IRS Form 1099-R, to report any distributions made from the SDIRA.

Once AET receives the necessary documentation, the distribution process will begin. This may involve:

• Transferring Assets – Assets in the SDIRA will be transferred as they are, depending on the beneficiary's preferences and the type of assets.
• Distributions to Beneficiaries – Your beneficiaries will choose how to take the distribution, whether as a lump sum or through another distribution option available under IRS rules for inherited IRAs.

Inherited Accounts and Asset Division

In the event that beneficiaries open inherited accounts, the cash or assets from the deceased client's account will be divided per the established beneficiary ownership percentages. Once the cash or assets have been divided and transferred into the inherited accounts, beneficiaries can then choose to liquidate or withdraw investments or cash as they see fit. However, beneficiaries do not have the option of liquidating investments before transferring them into the inherited account. The assets will be transferred as they are, and beneficiaries will manage them in the inherited account according to IRS rules.

Spousal Beneficiaries

If the deceased client has a spouse, the spouse is entitled to open an Inherited IRA or elect to treat the account as their own. The Inherited IRA has specific limitations and rules that differ from those of a standard SDIRA, including required minimum distributions (RMDs). Alternatively, the surviving spouse can choose to transfer the assets into their own IRA, where the account will continue to operate according to the spouse's individual needs.

If the surviving spouse chooses to open an Inherited IRA, they will be subject to distribution rules specific to inherited accounts. The surviving spouse has the option to take distributions as a lump sum or spread them out over a period, depending on the available options and their financial goals.

Required Minimum Distributions (RMDs) for Beneficiaries

If your beneficiaries inherit your SDIRA, they may be required to take Required Minimum Distributions (RMDs), depending on whether they are a spouse or non-spouse, and how they choose to handle the inherited IRA.

For non-spouse beneficiaries, the IRS generally requires that the IRA be distributed within 10 years of the account holder’s death. However, certain exceptions may apply. A spouse can either treat the IRA as their own or opt to take distributions over their lifetime.

What If I Haven't Designated a Beneficiary?

If you pass away without a designated beneficiary, AET will transfer the assets according to the instructions provided by your estate. The account will likely go through probate, where the executor of the estate will distribute the assets based on your will or, if no will exists, in accordance with state laws. This process may take some time and could delay the transfer of assets to your heirs.

Final Thoughts

It’s important to regularly update your beneficiary designations to avoid complications or delays when your SDIRA is transferred after your passing. AET is committed to ensuring that your account is handled with care and in compliance with all relevant IRS regulations. If you have any questions or need assistance regarding your SDIRA and beneficiary designations, please contact AET Support.