Beneficiary and Contingents Decline
If the primary beneficiary and contingents decline to accept the IRA they’ve received from their father. What happens to the account then? Can they request the account goes to another?
If the primary beneficiary and contingents decline to accept the IRA they’ve received from their father. What happens to the account then? Can they request the account goes to another?
Permalink Submitted by Alan Spross on Thu, 2009-11-19 18:25
No. After all designated and contingent beneficiaries have filed qualified disclaimers, the IRA agreement determines where the funds go. In this situation, the original owner’s estate would become the default beneficiary under most agreements. If that person had a will, the will beneficiaries would be awarded the IRA upon conclusion of probate procedures. If there is no will, state intestate provisions will apply.
The current beneficiaries cannot actively “redirect” the funds to anyone. However, given the cost and time consumed using disclaimers, and knowing the status of any will, etc, the current beneficiaries may find it more efficient NOT to disclaim their interests. Instead, they could be better off accepting the funds, reporting the income on their own returns, and then gifting the after tax amount to the person they wish. The gift tax exclusion is 13,000 per donee. The size of this IRA will be a factor in determining the best way to proceed.
Permalink Submitted by mk foss on Fri, 2009-11-20 03:08
Alan is correct, of course. There is one other consideration. One cannot disclaim an asset that they will receive as part of the disclaimer unless they are the surviving spouse. Here’s an example: Spouse is primary beneficiary, family trust is contingent. If spouse disclaims, he/she “gets it back” as a beneficiary of family trust – thus disclaimer is valid. Another example, Child is primary beneficiary, family trust is contingent. If child only disclaims his/her interest as primary beneficiary, it doesn’t work. Child would need to disclaim his interest in the family trust as well for disclaimer to be valid.
It’s more complicated in the situation where the estate becomes the beneficiary by default. Will the disclaimer be valid? Will someone other than the spouse receive what they would have in any case? Do you want the IRA to go through probate because it is now an estate asset?