Beneficiary of IRA that was not claimed by Spouse of Decedent

Submitted by Glen Harding on Wed, 2015-07-29 15:24

Hello, I have a new client who was named as contingent beneficiary on her Fathers IRA Account, her mother was the beneficiary, but failed to claim the IRA. The father passed away 7 years ago… the mother passed away in March of last year. The client is named as contingent beneficiary on her Mothers IRA.

My question is…is it possible for the client to claim the Fathers IRA as Inherited etc…or as the Mother did not claim the IRA before her death, will the IRA need to go into the estate and be paid out to the client over the 5 year period?

Hope you can help.

Glen

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Permalink Submitted by Jose Morales on Wed, 2015-07-29 16:36

Some additional information would help clarify the options available. Did the father die before or after their Required Beginning Date? How old was the mother when the father died? How old was the mother when she died? If the mother had a required distribution upon being the designated beneficiary of the fathers IRA and did not take the distribution then the IRA was considered her by default. In that event you would need to look to see who she named as her primary and contingent beneficiaries. If the mothers primary beneficiary was deceased prior to the mother passing then the contingent beneficiary would have the right to claim the funds and establish their own inherited IRA.

Permalink Submitted by Glen Harding on Wed, 2015-07-29 20:24

Father was 80 when he died, Mother was 78 when he died. Mother was 85 when she died. The issue is that the mother never claimed her spouses IRA as her own, i.e. retitled it in her name.

Permalink Submitted by Alan - IRA critic on Wed, 2015-07-29 16:52

Not sure, but it sounds like there is only one IRA here, that of client’s father. And that mother did nothing to retitle the IRA as inherited, which means she did not name any successor beneficiary. If this is the case, the contingent beneficiary listing of the client is immaterial because mother was alive at the time of father’s death and she did not file a disclaimer. I would need parent’s ages at the time of father’s death to determine if mother had an inherited IRA obligation or not. This is important because if she had an inherited IRA RMD (father would have reached 70.5 by 12/31/2013) she failed to take, she would have defaulted to ownership status of the IRA, and that might have affected who her default beneficiary is under the IRA agreement. In most cases however, it would be mother’s estate. And if it is her estate, beneficiary will be determined by her will. If client is the beneficiary in her will, then what remains is determining what the RMD schedule would be and that depends on the prior unknowns. One possibility of course is the 5 year rule, but RMDs also might be due under one of the parent’s remaining life expectancies. There are 3 possibilities, but I need those ages to tell what applies here. Also, please advise if any assumptions I made from your post were incorrect.

Permalink Submitted by Glen Harding on Wed, 2015-07-29 17:45

Father passed away at the age of 83…I have asked for copies of Tax returns prior to 2008 for the couple, and from that period for the Mother, so that I can ascertain whether or not the Mother had been taking distributions, however, my client does not believe that the mother took any distributions.The Mother has an IRA, but it is hers…it is not a beneficiary IRA. She never took control of her husbands IRA when he died…the IRA Statements that the daughter has are still in her Fathers name, and they are from the end of June.

Permalink Submitted by Alan - IRA critic on Wed, 2015-07-29 18:17

Glen – still need mother’s age. But I will guess that she also was past her required beginning date when she defaulted to owning the iRA, and accordingly if her estate is the default beneficiary under the IRA agreement, her estate (or beneficiary of her when IRA is assigned to that beneficiary) will have RMDs based on mother’s remaining life expectancy (Table I using mother’s age as of 12/31/2014).
Note that if mother never re titled the IRA, she could not have taken any distributions or named her own beneficiary. Therefore, without her naming her own beneficiary, the IRA would go to the default beneficiary under the IRA agreement. While remote, there is a slim possibility it would be her children, but most likely will be her estate.

Permalink Submitted by Glen Harding on Wed, 2015-07-29 20:05

In what circumstance would the default beneficiary be her children? And how can we determine that?

Permalink Submitted by Alan - IRA critic on Wed, 2015-07-29 20:26

You would have to secure a copy of the current IRA agreement unless you fully trusted the statements made by the IRA custodian. Sometimes custodian reps do not know what is in their own agreement. Client could have a copy of a very old agreement but the IRA custodian might have updated it over the years, so you need the current edition of the IRA agreement. The beneficiary clause should indicate who the default beneficiary is, and you are looking for the default beneficiary of the owner because mother became the owner by the RMD default provision. Again, in most cases this default beneficiary would be mother’s estate, not the children. Mother’s age that you confirmed agrees with my assumption that she not only became the owner by default, but that she then passed after her RBD. That does eliminate the 5 year rule from applying.

Permalink Submitted by Glen Harding on Wed, 2015-07-29 20:31

Thank you Alan, can I take your last sentence as saying then that the Estate would need to pay out to the beneficiaries of the Estate according to the life expectancy of decedent, or the beneficiaries?

Permalink Submitted by Alan - IRA critic on Wed, 2015-07-29 20:46

If, as expected, the estate is the default beneficiary, the RMDs would be based on the remaining life expectancy of mother, the deemed owner of the IRA. If mother’s will named your client as beneficiary (or if no will, state intestate provisions), the estate executor could have the inherited IRA assigned to your client. Client could then control the investments and distributions from the IRA and the estate could be closed unless there are other estate issues. RMDs would be based on the remaining life expectancy of mother and that would produce a divisor of 6.6 for 2015 RMD, barely better than a 5 year stretch. Client would also be responsible for the 2014 year of death RMD since mother did not take that RMD. However, client is not responsible for taking any earlier missed RMDs for years prior to 2014.

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Permalink Submitted by Glen Harding on Wed, 2015-07-29 20:58

Thank you again, the assets are held by GE Capital Funds, Highland Funds and Dreyfus Funds, have you happened to have any experience with them ref. this issue. I truly appreciate your assistance.