Probate is the legal process where the court oversees the distribution of assets of the deceased individual to creditors and heirs.
In Oregon there are two possible processes:
- Full Probate.
- Small Estate Affidavit.
Which process is available or needed depends upon the size of the decedent’s estate, possible disputes, and what protections are desired for the personal representative, heirs, and devisees.
Probate is not always needed. Generally, probate is needed for assets that do not have survivor provisions or named beneficiaries. Probate may also be needed when there are disputes related to the will or assets of the decedent or money was owed to the decedent. Most vehicles can be transferred without the need for probate. If the decedent had very little, then probate is usually not needed.
IRA accounts are one of the many asset types that one can inherit that are fraught with peril for the unwary. The inheritance and tax rules for IRA accounts are different for those who are the spouse of the decedent and those that are not. Spouses can receive special tax status for inherited IRA account funds.
If you are not the spouse you cannot treat the IRA as your own. The tax rules give several options for how a non-spouse can take distributions from the IRA account. Despite what one may have read on the internet, you do not have to take the IRA as a lump sum distribution when it is inherited. The tax rules allow beneficiaries to spread payments over several years. This is important since IRA funds are not subject to income tax until they are distributed to the beneficiary.
If the person you are inheriting the IRA account from had a basis in that account, that basis will remain with the IRA. Spouses have some flexibility as to how they treat the inherited IRA, but one must tread carefully.
As with all things related to taxes and IRS, the regulatory landscape is subject to change without notice.
Before accepting any distributions from an inherited IRA, you must talk to an experienced tax professional to insure that you maximize your inheritance and don’t find yourself in an ugly tax situation with the IRS.