IRA beneficiary disclaiming
I have a client who’s father passed away over 70 1/2. He named his two kids as beneficiaries, they would like to pass directly to their kids. Would the account be set up as a decedent IRA with the children and then disclaimed and then setup as a decedent with the grandchildren. The kids are under the age of 10, so I would have a parent as custodian for them. Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2015-01-27 16:49
The IRA agreement needs to be carefully reviewed before disclaiming to determine the result of disclaimers, as the grandchildren were apparently not listed as contingent beneficiaries. Check with the IRA custodian to determine whether they require the named beneficiaries to establish an inherited IRA before accepting disclaimers. Eventually, the inherited IRAs would be titled in the name of the grandchildren as beneficiaries of the original IRA owner. State law will affect the selection of required financial guardians for the minors, but client should beware of the possibility that upon reaching the age of majority, the grandchildren could drain the inherited IRAs.
Permalink Submitted by Jon Heller on Thu, 2015-01-29 19:41
one more comment on this – if it is disclaimed and the grandchildren are the new beneficiaries will we use there date of birth to determine the required distribution minus 1 each year or the original beneficiaries date of birth. Thanks…
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-29 19:51
If the grandchildren are listed as contingent beneficiaries, their life expectancies can be used for RMDs. If the IRA agreement states that the funds go the owner’s estate and the grandchildren are the will beneficiaries, then the estate is the actual beneficiary and the decedent’s remaining life expectancy would determine RMDs to inherited IRAs for the grandchildren. The RMD schedule depends exactly how the grandchildren inherited the IRA. The original beneficiary’s age would never be used if that beneficiary disclaimed. The original beneficiary is not allowed to take any distributions other than the year of death distribution for the owner or the disclaimer will not be a qualified disclaimer.