IRA with minors as beneficiaries
My 40 year old daughter passed away in November, she was divorced with two minor children. I am the Trustee of her Trust of which the children are the beneficaries. Her IRA was the only thing outside of the Trust and her two children are the beneficiaries. Her ex-husband is the legal guardian of the children now. Do I have to turn this IRA over to her ex-husband or is there some way I can have it split between the two children and oversee the annual payouts they will receive? I am concerned that the annual payouts will be spent for something other then the children. I am also concerned that the ex will not split the IRA or take the 1st annual payout therefore falling under the 5 year rule of a lump sum payment to the children and then the money getting spent for something other then the children. Can someone please advise me. This split must be done by Sept 30th and the first annual payout by Dec 31st. Thank you.
Permalink Submitted by Bruce Steiner on Sun, 2010-08-15 02:52
If you are not a beneficiary of your daughter’s IRA, your only connection to the IRA (assuming you are the executor of her estate) is to obtain the necessary information to report it on her estate tax return, pay the estate tax, and (unless state law or the tax clause in her Will exonerates the IRA) collect pro rata shares of the estate tax from the beneficiaries.
The IRA is not yours to turn over, split, or oversee.
Permalink Submitted by William Tuttle on Sun, 2010-08-15 05:29
You could petition the court to appoint you as custodian of the children’s beneficiary interest in the IRA. The father is the legal guardian of the children and would be the default choice for being appointed custodian of the children’s IRA interest. However, I think this would still require an order of the probate court.
If you are in fact the executor of the estate AND trustee of the children’s trust, you could make a compelling case that your daughter would have wished you to also be custodian of the IRA. Guardianship and legal custody always defaults to the remaining biological parent, short of some grievous factors. However, in most states, judges have more discretion in appointing custodial control of minors financial affairs.
Even if you are unsuccessful in being appointed yourself, the judge may choose to appoint an independent custodian. Unfortunately, this custodian will have to be paid, possibly from the trust rather than from IRA assets.
This is another example why minors should not be primary beneficaries of retirement accounts without at least specifying a custodian for them.