Client (the executor) will have deceased father's 1099-R (of nearly 1 mil.). Father had no named beneficiary (since his beneficiary wife predeceased him), and no will, so the IRAs will be payable to the estate. There are 3 sons. If they are deemed to be the only legal heirs, can I do the 2022 tax return with three K-1's as distributions, or must the estate pay the tax at its high bracket.
She didn't state there is already a 1099-R. She's planning for 2022 and if the payment is made this year to the estate, that is what will be issued to it. And then if the funds are distributed to the estate beneficiaries this year, they will receive Schedules K-1 and pay tax on their share. In most states (those with the Uniform Probate Code, or something similar) it's allowed -- even encouraged -- to make partial distributions while the estate is still open. But maybe this case comes from New York, California or some other backwards state. (Ever notice how the most liberal states are often the most conservative when it comes to protecting probate-lawyer fees?)
One thing I came across while researching this for a client in the same situation is that some IRA trustees have default provisions in their agreements, that designate the spouse or children as beneficiaries in the absence of a beneficiary designation. So the starting point should be to look at that. This is pointed out in a reliable article at
https://www.irahelp.com/slottreport/there-no-beneficiary-retirement-account-now-what
"She didn't state there is already a 1099-R."
That means an activity will be done in 2022.
"and if the payment is made this year to the estate"
There is nothing that describes if there is a Distribution or not. She told us:
"will have deceased father's 1099-R"
Which means they know there is or will be an activity that will result in a 1099-R. That's what I replied to. I will edit my reply to describe that it isn't clear if there is already an action taken, or not.
The IRS has stated in more than one ruling that when the Estate is the IRA beneficiary (by default or as stated), there is the ability to treat it as an Inherited IRA (with some restrictions), and you are not forced to completely cash it out just because it is "to" the estate. Creating transfers to inherited IRAs for the Estate beneficiaries is permitted.
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