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Question for the Money Doctors

Question submitted on Aug 17, 2011.

Question

This is complicated...Over the years, my father had been helping my cousin Chet Jr with his finances. Chet Jr is not all together emotionallly/mentally. Chet Sr died in 2006 and left everything to Chet Jr. Due to Chet Jr's emotional and financial situation at the time, everything was actually left in the estate of Chet Sr with my father as the executor. Apparently, in 2009 one of the IRAs was put in my father's name. I don't know why, the financial consultant who managed the account does not recall exactly why, and Chet Jr does not know why. In 2010 my father and Chet Jr decided to withdraw the IRA money to pay off the mortgage on Chet Jr's house (which is still owned by the estate of Chet Sr). In 2011, my father went through radiation treatment for lung cancer, was in and out of the hospital with congestive heart failure, and died in April. I was gathering the paperwork to do the 2010 taxes for my parents and received a 1099-R in my father's name for the IRA withdrawal. I spoke to my father before he passed and he told me I needed to fill out form 1041 - estate stuff. Based on the 1099-R and my calls with the account manager, I could not figure out how to fill it out. I started calling the IRS and Chet Jr engaged tax preparers. After much contact, both the tax preparer and I were told by the IRS that I should complete a 1099-R form from my father to Chet Jr so Chet Jr could report it on his taxes and my father could show that he did not receive the money (BTW - I have the cancelled checked showing that it was issued in Chet Jr's name). Chet Jr has now engaged lawyers who have advised him that we should not have issued the 1099-R, that he should not file the taxes as completed. I am uncomfortable and get the impression that Chet Jr and the ''lawyers'' want my mother to pay the taxes and penalties on the IRA distribution for Chet Jr. We don't have the money, rather we have some money but it would completely wipe my mother and ME out. Can I talk to someone? Who do I talk to?

Answer

I am sorry for your loss.  Not knowing the amount of the 1099-R and your mother's tax situation, it is not possible to estimate the taxes she would owe on her return.  Hopefully, you requested the IRS follow up with you in writing regarding the re-issue of the 1099-R to Chet Jr.  If not, you should follow up with the IRS to provide the advice in writing.

I highly recommend you seek professional assistance from an estate attorney in your area who can work with your tax preparer to help with the estate returns, your parents 2010 taxes and other issues.  I would also push the firm who handled the IRA to get them to issue a corrected 1099-R to your cousin with his social security number and a corrected 1099-R (with the amounts as $-0-) issued to your father.  If the financial consultant can not help you, request the branch manager, as it would be best if the firm that had the IRA could issue corrected paperwork.  You will also want to have the branch manager look into why the IRA was changed to your father's name and social security number in 2009, considering that you indicate Chet Sr left everything to Chet Jr.  Unfortunately, there does not appear to be a quick, simple solution to this but hopefully the answer gives you some direction.  Best wishes as you try and get everything resolved.


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