When you die, your IRA and the entity it owns, the LLC or trust, pass to your designated beneficiaries. The process involves two parallel tracks: administering the entity and transferring the IRA itself. Both need to happen in sequence.
Your IRA LLC or IRA Trust does not disappear at your death. It continues to exist until it is properly wound down. If you named a successor trustee or successor manager, that person steps in immediately to administer the entity. Their role is to maintain the entity, manage any open transactions, liquidate or transfer assets as needed, and facilitate the distribution of value to your IRA beneficiaries.
If no successor is named, a beneficiary may eventually step into an administrative role, but the process takes longer and can create complications, particularly when the plan holds illiquid assets like real estate or private investments.
The IRA itself transfers according to your beneficiary designation on file with the custodian. Your will has no bearing on this process. There are two possible outcomes: the custodian establishes an inherited IRA account in the beneficiary's name, allowing them to receive the assets and manage distributions over time, or the beneficiary elects a full distribution of the account value. The right choice depends on the beneficiary's relationship to the account holder, their tax situation, and applicable distribution rules.
A surviving spouse has the most flexibility. They can roll the inherited IRA into their own IRA and treat the assets as their own, subject to the same rules and timelines as any IRA in their name. Alternatively, a spouse can elect to treat the account as an inherited IRA, which allows distributions without the early withdrawal penalty if they are under age 59½.
Non-spouse beneficiaries generally must distribute the full account within 10 years of the original account holder's death. Certain beneficiaries, including minor children of the account holder, disabled or chronically ill individuals, and individuals not more than 10 years younger than the original owner, qualify for extended distribution timelines based on life expectancy. Non-person beneficiaries such as estates or charities face a shorter 5-year distribution window.
Distribution rules in this area are complex and have evolved through recent legislation. Consult a qualified tax or estate planning professional to understand your options as a beneficiary.
One unique challenge with self-directed IRA plans is that there is no third-party brokerage statement listing the plan's assets. Alternative investments, like real estate, private funds, and cryptocurrency, are not visible to an inheritor without prior knowledge. Make sure your beneficiaries and your chosen successor know where your plan records are kept and what the plan holds.
This information is provided for educational purposes only and should not be interpreted as tax, legal, or investment advice. Readers are encouraged to consult a qualified professional who can offer guidance based on their personal situation.