What happens to an IRA upon..

[banditfist]

I have a family member who has a terminal ailment. He has over $300k in an IRA. Since this money has never been taxed...taxes will be due. Now, normally, IRA distributions are taxed at whatever bracket you fall into with all your distributions.
In the case of my family member's IRA does that mean that upon his death that the entire IRA becomes taxable at the max tax rate with an income of $300k?

Fidelity offers 3 options:
1. Transfer to an inherited IRA where you can start taking required minimum distributions.
2. Take a cash distribution for the full gross amount (you'll owe ordinary state and federal taxes).
3. Disclaim all or part of the IRA, and let it pass on to another beneficiary.

EDIT: Just thinking... If you get $300,000 in the middle of the year without any tax withheld, you're probably going to have to make a quarterly tax payment to stay current with the IRS? Probably would be a good idea to chat with an accountant on this one.

[moneybags]

It depends. Do you know who the beneficiary is? If it is a trust, the $300k will be distributed according to the trust & thus taxed upon distribution. If you are the beneficiary, you can keep the funds in the IRA (need to change the wording on the account, including your name & the deceased's name) and start take required minimum distributions. Only your RMD will be taxed each year. If there are multiple beneficiaries, the account should be distributed so that each person can take their RMDs or take it all out if they want (and pay taxes on their share).

[banditfist]

Ouch...legalities...
Yes, the IRA is in a trust. The trust will be split three ways between myself and my two brothers (one of which is the trustee).

[moneybags]

Yes, the IRA is in a trust.

Do you know for sure that the trust is listed as the beneficiary? My MIL had a trust, but had listed her children as beneficiaries for her IRAs, thus they never went into the trust, but directly to her heirs.