Inherited IRA
Our 39 year-old son recently passed away. He was married, but never changed his Roth and Traditional IRA beneficiary when he married four years ago. His sister is the primary beneficiary with us as contingent beneficiaries in equal shares.
Can our daughter disclaim all or any part of the IRA and allow it to pass to his widow instead? If so, how would that be done in each instance?
Permalink Submitted by Al Fry on Tue, 2009-01-20 02:32
Sorry for your loss, Tom. I’ll Bruce or others get into this one.
Permalink Submitted by Bruce Steiner on Tue, 2009-01-20 03:50
If you disclaim, then unless the governing instrument (in this case, the beneficiary designation form) provides otherwise, the assets go as if the person disclaiming had predeceased the decedent. In this case, the IRA would go to the contingent beneficiaries.
But if the contingent beneficiaries also disclaim, then the IRA would go in accordance with the default provisions of the IRA agreement, or if none, then to the decedent’s estate. If the other beneficiaries of the estate then disclaim, it may be (and likely is) possible to get the IRA to the spouse, who may then be able to do a rollover.
Here is an article I wrote on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf. It’s still current.
I obtained a private letter ruling allowing a spousal rollover in a similar case.
Permalink Submitted by Jay Price on Wed, 2009-01-21 20:48
I got an error message while trying to read the bsteiner document.
My situation is that my Dad, wanting to avoid probate, made me beneficiary of his three IRAs and everything else. He also made me co-owner with survivor rights on other properties. The catch is that I was instructed to divide everything equally with two siblings.
He failed to realize the complications. One sibling and myself want to keep the IRAs and convert them to beneficiary IRAs. My brother, a businessman, wants cash to invest according to his needs. As I understand it, I am at the age where I can make withdrawals from the IRAs. I told him I would have to take 30% tax out of it before giving him the cash. Of course, that is quite a hit! I am willing to work with him but I asked the Bank Custodian and was told there is no way I can give him one of the IRAs.
I understand you to say that I CAN disclaim. Could I do that on one IRA and not on the other two? His CPA has suggested that but the way I read what you wrote, MY beneficiaries would inherit since I am the only named beneficiary, not my siblings. And even if it would go to the siblings, it would have to go to both of them, wouldn’t it, not just one? That would not solve his problem of wanting 1/3 of the IRA value in cash.
Thank you for any clarification you can give.
Permalink Submitted by Bruce Steiner on Wed, 2009-01-21 21:02
I’m sorry the link didn’t work. I added a dot at the end of the link, intending it to be a period at the end of the sentence, but it got added to the link. When you paste, it, delete the dot at the end. Or try this one: http://www.kkwc.com/docs/AR20050125164755.pdf
You can disclaim anything just about anything you want. If you disclaim something, then, unless the governing instrument (the Will, trust, beneficiary designation, etc.) provides otherwise, the disclaimed property will go as if you did not survive your father.
There should be several ways you can get to the result you want, or at least get pretty close to the result you want.
For more specifics, you should consult tax/estates counsel.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Jay Price on Wed, 2009-01-21 22:00
Thank you, Bruce, for your answer. Would you recommend I see an estate attorney on these matters or a CPA? A CPA who specializes in IRAs was recommended to me but he is leaving on vacation.
One option would be to give my brother cash from the sale of other properties, but my sister and I don’t want to wind up w/o any cash.
Could you answer my question about who would be the heirs if I disclaim? That sentence in this thread about disclaiming would be as if I were dead made me think it would go to my heirs since I am the only named beneficiary. No secondary beneficiaries were named on any of the three IRAs. But I read something different from that in another thread. I just need clarity.
Again, thanks.
Permalink Submitted by Bruce Steiner on Wed, 2009-01-21 22:07
I suggest you consult a lawyer — the lawyer handling your father’s estate, or the lawyer who handles your estate planning, or some other competent tax/estates counsel.
Living persons don’t have heirs. Only dead persons have heirs. So your heirs won’t get the IRA if you disclaim it. If there are no contingent beneficiaries, the IRA agreement will say who gets it. Sometimes it’s the IRA owner’s spouse. Sometimes it’s the IRA owner’s estate.
Your job is to tell the lawyer what your objectives are, not how to accomplish them. The lawyer’s job is to recommend how you can best accomplish your objectives, and then to draft the necessary documents (such as the disclaimer, if you decide to disclaim).
Without knowing all of the facts, it’s not possible to offer specific advice; and in any event, a forum such as this is for general information, not specific legal advice.
Permalink Submitted by Jay Price on Wed, 2009-01-21 22:38
Thank you for your professional reply.