Refusing beneficiary status

Submitted by Patricia Wojcik on Wed, 2013-09-11 13:07

Last year my mother received her pension from work. Her lawyer advised her to place the money into 3 individual IRS’s with each of her daughters as beneficiary. Unfortunately she did not do this. She placed all of the funds into one IRA with only me as the beneficiary. Last April my mother passed and I am the executrix of her will. The bank that holds the IRA’s originally told me that I can refuse beneficiary status and name my sisters and I as the beneficiaries. Then I finally got the paper work from the company (Ascensus) that handles the IRA’s for the bank. The papers stated that if I refused beneficiary status the moneys would go into an estate account. After speaking with the company the facts changed and they sent new papers which state that the funds would be split evenly with her living children. The problem with this is that my mothers will states that my brother only get a fourth of the proceeds from the sale of the house and not any of the money in her accounts.
My sisters and I are trying to figure out what to do with this money. It is not that we are greedy, It is that my mother was very adamant about what was supposed to happen with her estate. Please advise me on what are my legal options with this money. Thank you.



Submitted by Jose Morales on Wed, 2013-09-11 15:37

You cannot disclaim and then name new beneficiaries yourself. Are you trying to maintain the ability to take minimum distributions over the single life expecancy of yourself and your sister or will the account be closed out regardless of who is beneficiary?  If closing the IRA is the plan you could take a full distribution as the sole beneficiary and then gift an equitable portion to your two sisters.  This will leave the entire tax burden for the distribution on you however.  Maybe you can adjust how much each sister gets to compensate for the added tax liabilty that you will face?



Submitted by Patricia Wojcik on Wed, 2013-09-11 16:29

We are trying to trying to place the funds into 3 different beneficiary IRA’s and take the minimum distributions.  I have spoken with my accountant and I know that I can take the IRA and gift my sisters their 1/3rd each but then my children would be responsible for paying estate taxes on the money when I pass.  We thought of putting the funds into 3 different beneficairy IRA’s in my name with my sisters each as beneficiary of 2 of them and then gifting them under the 15000 per year, but that would take over 10 years to distribute the money and I would be paying income taxes on the money I take out of the accounts which would put me in a higher tax bracket.  My sisters are the one’s that need the money, I just want to put my portion into a beneficiary IRA and take out the minimum yearly.The credit union manager said that I should be able to place all the money into an estate IRA and then take the minimum distrubutions out and devide them according to the will.  I don’t know if this is correct.



Submitted by Peggy Fisher on Wed, 2013-09-11 16:26

I am not an attorney but….I think you can do what you want.  Maybe not at the institution that is currently holding the IRA.  However, I think it can be done.The purpose of IRA Form 5305-A is a model custodial account agreement or the template for every financial institution’s IRA custodial agreement.  Article VIII, and any that follow it, may incorporate additional provisions that are agreed to by the Depositor and Custodian to complete the agreement.  The custodial agreement is the contract between the institution and the individual for an IRA.  It lays out the rules.The first step as the beneficiary of your mother’s IRA would be to disclaim the portion you want to give to your sisters.The second step as the executor would be to provide the financial institution with a court document saying you are the executor of the estate.  As executor of the estate, you can direct the institution to open up two accounts in the name of the beneficiaries.  It must be a court document.  A copy of the will is not sufficient.Not all institutions are aware of this.  Not all institutions allow this.I would recommend you first get a copy of the current institutions custodial agreement.  Drop down to article VIII and look for the section Designation of Beneficiary section.  It should say something like…. “Unless otherwise directed or prohibited by the Depositor in writing on file with the Custodian, after the Depositor’s death, the Depositor’s Beneficiary (and any subsequent beneficiary of the Depositor’s Beneficiary), if permitted by state law, shall have the right by written notice to the Custodian to designate or change a beneficiary to receive any benefit to which the Depositor’s Beneficiary (or any subsequent beneficiary) may be entitled…”At my broker/dealer, the form, which allows both steps to happen, is called the Move Money/Distribution Request/IRA Beneficiary Claim/Disclaim Form.  It is a multipurpose form.  Different institutions will have different names.When this situation happens, I either educate people along the way or transfer the account to my broker/dealer that understands IRA’s.Word of caution.  You have nine months after death to do this.  Do not touch a thing until you have the name of the person you spoke with, the date, the time and notes on the conversation.  You need a complete paper trail.Good luck!



Submitted by Alan - IRA critic on Wed, 2013-09-11 17:56

  • The age of your mother when she passed is very important. Even if her estate is the clear default beneficiary under the IRA agreement in the event you execute a partial qualified disclaimer, if she passed prior to her required beginning date (4/1 of the year following the year she would have reached 70.5) then the IRA becomes subject to the 5 year rule. Your portion which would not be disclaimed (partial disclaimer) could be distributed over your own life expectancy if you create a separate inherited IRA account for yourself by 12/31/2014. Of course, you would adjust your share to eliminate your brother from the IRA account.
  • You will also have to file a partial disclaimer under the will so that you do not run afoul of the qualified disclaimer requirements that you cannot disclaim when you will receive funds (your share of the IRA reaching the will) as a result of the disclaimer. So that’s two disclaimers to be executed.
  • Your sisters would then receive their adjusted shares of the IRA and as executor you could have their shares of the IRA transferred to individual inherited IRAs for them. But they are STILL subject to the 5 year rule if mother passed prior to her RBD. If mother passed on or after her RBD, then your sisters could stretch their inherited IRAs over your mother’s remaining life expectancy, again a much shorter stretch than using their own life expectancies, but probably better than the 5 year rule would require. If your IRA custodian balks at this scenario, you could do a direct transfer of the IRA to another probably larger custodian.
  • If mother passed after her RBD, her 2013 RMD must be taken by you prior to 12/31/2013. If this applies, you also have to include that distribution in the math to determine the amount of the partial disclaimer. This RMD of your mothers’ does NOT invalidate your disclaimer, but you cannot take out any other funds before disclaiming of the disclaimer will not be allowed. 


Submitted by Patricia Wojcik on Wed, 2013-09-11 18:13

I spoke with the credit union again and they are stating that as of May 1, 2013 the funds, should I refuse beneficiary status, go to the estate, but prior to May 1st the funds go to the living children.  My mother passed on April 2, prior to the new agreement with the credit union.  I am going to request all this information in writing and then see about seeing an lawyer that handles this kind of thing.  I know that I only have until January 2, 2014 to refuse beneficiary status which is 9 months after her death.By the way my mother was over the age of 70.5 and I think she had already took her RMD for this year.



Submitted by Peggy Fisher on Wed, 2013-09-11 20:39

IRA’s are very word sensitive.You want to do a “partial disclaimer” as a beneficiary.    You would keep your share.  You might want to revisit the topic with the credit union and ask them how they feel about “partial”.The “partially disclaimed” funds then would go to the estate.     As executor, you could have your sisters shares transferred to individual inherited IRAs.  Your sisters could then stretch their inherited IRAs over your mother’s remaining life expectancy. I would suggest you confirm with the institution that the RMD was taken for the year.  There is a 50% penalty if RMDs are not taken and the error is discovered later.You are asking all the right questions and you are doing so before you move the money.  You are more on top of it than it feels. 



Submitted by mk foss on Wed, 2013-09-11 20:52

I think it’s necessary to not only do a partial disclaimer of the IRA but an partial disclaimer of the estate in order for the disclaimer to be valid. Contact the attorney who is assisting with the estate administration for help with this.



Submitted by Bruce Steiner on Wed, 2013-09-11 22:34

If you disclaim, you can’t say where the disclaimed portion goes.  You should check to see if your mother named contingent beneficiaries.  If not, you should check to see if, under the IRA agreement, the default is to the children, or to the estate. If your siblings are the contingent beneficiaries, or if the children are the default beneficiaries under the IRA agreement, then you can disclaim.  If not, then you can take the IRA (to preserve the stretch) and make it up to your siblings in some other way.Bruce Steiner, attorney, NYC, also admitted in NJ and FL



Submitted by Peggy Fisher on Wed, 2013-09-11 22:53

As a beneficiary who disclaims she can not say where the disclaimed portion goes.  But as the executor of the estate she can determine where the disclaimed portion goes. 



Submitted by Alan - IRA critic on Thu, 2013-09-12 01:02

As executor she must distribute according to the will. The executor should have discretion however in determining whether the will beneficiaries receive a distribution or an inherited IRA transfer into separate inherited IRA accounts. There have been plenty of executors that submitted to IRA distributions when they should have resisted IRA custodian suggestions to make distributions to the estate. IRA custodians in general like to press for estate distributions because this is simpler and they avoid bookeeping issues inherent when there are multiple IRA beneficiaries.



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