Inherited IRAs and UK beneficiaries?

They can’t open an account which is why the funds including IRAs etc have to be cashed out. When we made our wills in England a few years ago our lawyer mentioned that he hates having to deal with US brokerages to get the money  released to UK beneficiaries and we told him that both our children held brokerage accounts with same US brokerage as us so it should be easier. You are good to be thinking ahead on this.

OK so who's doing that sale and how is the tax assessed. If it's the estate then will the tax be paid by the estate before distributing the net proceeds to the beneficiaries. If so this would make the IRA beneficiary designations moot and the IRA might as well have just passed to the estate. I will ask my cutodian tomorrow, but don't really expect a sensible answer.

They can’t open an account which is why the funds including IRAs etc have to be cashed out. When we made our wills in England a few years ago our lawyer mentioned that he hates having to deal with US brokerages to get the money  released to UK beneficiaries and we told him that both our children held brokerage accounts with same US brokerage as us so it should be easier. You are good to be thinking ahead on this.

I think I have the answer and unfortunately it involves trusts. I'll set up "conduit trusts" (or more importantly my estate lawyer will) for my UK heirs and thats a US entity and that will distribute the money to the beneficiaries and they will pay the tax...US on a lump sum and UK income tax on regular distributions.

I think I have the answer and unfortunately it involves trusts. I'll set up "conduit trusts" (or more importantly my estate lawyer will) for my UK heirs and thats a US entity and that will distribute the money to the beneficiaries and they will pay the tax...US on a lump sum and UK income tax on regular distributions.

Sounds good.

Sounds good.

FYI I spoke with my IRA custodian - I had to talk to the "Complex Department". When my UK heirs inherit my IRA they will have to send a copy of my Death Certificate, a W8-BEN and written instructions to the "Complex Department". It will all have to happen in writing. They will then sell the IRA assets and send the funds to wherever instructed ie UK bank by wire transfer. So lump sum is the only option as my heirs won't be able to open a US account.

On the other hand if I create Conduit Trusts for each heir the trust could inherit the IRA and then the trustee could be instructed by the beneficiary what to do, ie lump sum distribution or sell bits of it each year according to IRS rules. I think this is a good solution for my general investment account too.

FYI I spoke with my IRA custodian - I had to talk to the "Complex Department". When my UK heirs inherit my IRA they will have to send a copy of my Death Certificate, a W8-BEN and written instructions to the "Complex Department". It will all have to happen in writing. They will then sell the IRA assets and send the funds to wherever instructed ie UK bank by wire transfer. So lump sum is the only option as my heirs won't be able to open a US account.

On the other hand if I create Conduit Trusts for each heir the trust could inherit the IRA and then the trustee could be instructed by the beneficiary what to do, ie lump sum distribution or sell bits of it each year according to IRS rules. I think this is a good solution for my general investment account too.

Great info, thanks for sharing that.

FYI I also talked to TIAA. They said that my foreign beneficiaries could open TIAA accounts and manage IRA accounts. I asked them directly if my UK resident heirs could open up accounts, have the IRA money rolled in to them and then disperse the money over 10 years. and they emphatically said " Yes". They said that they have many overseas clients and it's not uncommon. So a very different attitude to Vanguard.

FYI I also talked to TIAA. They said that my foreign beneficiaries could open TIAA accounts and manage IRA accounts. I asked them directly if my UK resident heirs could open up accounts, have the IRA money rolled in to them and then disperse the money over 10 years. and they emphatically said " Yes". They said that they have many overseas clients and it's not uncommon. So a very different attitude to Vanguard.

No problems then, let your beneficiaries sort out the accounts after you are gone.

I had a quick look at the TIAA Terms and Conditions and it looks like they won't be able to easily manage their inherited IRAs online but maybe I'm missing something.

https://www.tiaa.org/public/support/terms-conditions

The Site and the Materials on the Site are intended to be made available only to individuals who reside in the United States.

No problems then, let your beneficiaries sort out the accounts after you are gone.

I had a quick look at the TIAA Terms and Conditions and it looks like they won't be able to easily manage their inherited IRAs online but maybe I'm missing something.

https://www.tiaa.org/public/support/terms-conditions

Yes TIAA say their site etc is "intended" for only those who reside in the US. They don't say foreign investors can't use it and over the phone TIAA said there would be no problem for my UK heirs to have the IRAs ownership transferred to them and for them to manage it and take out RMDs over 10 years. Empower also said the same and that RMDs could be wired to a UK bank.

FYI,
Vanguard got back to a written question about how they handle UK beneficiaries
of US Vanguard IRAs and they say that they can open an account...but not a brokerage account.
So they can only hold US Vanguard mutual funds. This should not be a problem from a UK tax/reporting perspective
because the funds are wrapped in IRAs. Anyway here is what Vanguard says now.

"I wanted to reach out to you regarding your recent calls and questions
about having UK Residents as beneficiaries on your IRAs.

As it stands, your beneficiaries would be able to receive a portion of your
IRA as it is invested. A lump sum would not need to be paid out and I will
be informing the representative who told you this incorrect information
that this is the case.

While these beneficiaries cannot open a brokerage account, they would be
able to open an account type that only holds mutual funds in order to
receive their inheritance. They could then continue to buy and sell within
the account, provided that the UK continues to allow it and doesn't change
their laws.

As for your question about whether or not they could follow the 10 year
rule, I will want to defer this question to a tax specialist and/or an
estate attorney as we are not familiar with UK rules and regulations.

I hope this sheds some light on a previously unclear topic."

Thanks so much for reporting back on this, very good information to know.