Inherited IRA
Hello, I’m not an advisor but looking for some good advice. My brother recently passed away and had named my Mom (of RMD age) as the beneficiary (no contingents were named). My Mom doesn’t want/need the money and is happy that it go to me and my two sisters. Is it advisable for her to disclaim? What are the vital tax implications I should consider in this situation…whether or not she disclaims? Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-29 21:46
A disclaimant cannot re direct where the funds go. Typically, they work best when the person the disclaimant wants to receive the funds were listed as contingent beneficiaries. If the 3 of you were not named as such, then you need to carefully check the beneficiary clause of the IRA agreement to see who is the default beneficiary if there are no beneficiaries named. The default would normally be a spouse, but I assume he is single, his children, or his estate. If it turns out to be his estate, then look to his will to determine who his beneficiaries are. Even if the 3 of you were his will beneficiaries, you would not inherit directly and the 5 year rule would apply to RMDs if your brother passed prior to his required beginning date. Be sure your Mom does not disclaim without knowing exactly who will benefit. As for taxes, whoever receives the distributions will owe ordinary income tax but no penalty.
Permalink Submitted by Eric Gilbert on Fri, 2015-01-30 14:27
Thank you for your help! He failed to complete his will before passing away, does that change any of the information you provided.
Permalink Submitted by Alan - IRA critic on Fri, 2015-01-30 16:37
With no will, if the estate becomes the beneficiary due to disclaimer, the state intestate provisions will determine where the IRA funds go.