Parents Inheriting IRA from Child
I have a situation where an adult child passed away with his 84 year old parents as beneficiaries. There were no contingent beneficiaries named. The parents do not need the money and will ultimately leave it to their other children/grandchildren. The deceased son’s will leaves all assets to the parents so even if they disclaim the IRA doesn’t the IRA get left to them anyway? Is the best tax option for them to take distributions based on life expectancy (around 8 years) or are there other options for them to consider?
Permalink Submitted by Alan Spross on Fri, 2012-08-03 03:11
This illustrates one of the problems leaving IRAs to parents or older beneficiaries. If the IRA owner passes prior to the RBD the beneficiaries can opt for the 5 year rule or for life expectancy which in this case is only 3 years longer.
You are correct that they cannot disclaim without first disclaiming the assets as his estate beneficiaries as well. If his IRA goes to his estate they might check into the intestate provisions in this state to see where the estate assets disclaimed would go. First, they obviously should verify the default beneficiary provisions in the IRA contract.
In the end, if this is a modest amount of money, they might just take life expectancy RMDs and then pass those additional assets under their own estate plan. It might enable them to leave more assets to their beneficiaries that will get a stepped up basis and their beneficiaries will have a DOD cost basis instead of IRD assets. If they retain the inherited IRA, they should name their own successor beneficiaries ASAP.