IRA disclaimer
78 year old dies, before taking RMD this year. He named only one child as his beneficiary, although he wanted it to go to all his children, and the beneficiary is agreeing to split it. Its $350,000. What is the best way to handle this? I believe beneficiary can disclaim and it will default to the estate ( per the brokerage firm’s policy). Can it then be distributed 1/3 each and NOT be taxed at the estate level and be taxed at each individual’s level via a K-1? I believe that can all be done but please confirm. Must the RMD be taxed at the estate level?
Is there a more optimal way to proceed to minimize taxes? Are stretch options available in this scenario?
Permalink Submitted by Alan - IRA critic on Fri, 2015-11-06 20:08
With a qualified disclaimer the estate will apparently become the IRA beneficiary. However, the stretch will then be limited to the remaining life expectancy of the owner rather than the longer life expectancy of the child named. While RMDs can be distributed to the estate and passed through on a K 1, the executor will probably want to terminate the estate and assign the IRA to each of the estate beneficiaries. The beneficiaries will then take their own RMDs and be taxed at their own rate, but the owners life expectancy will still be required to determine the RMD amount. Other than that, each beneficiary will then have control of their own share of the inherited IRA.
Permalink Submitted by David Mertz on Fri, 2015-11-06 20:34
To be a qualified disclaimer, I believe that the designated beneficiary (other than the surviving spouse) cannot disclaim and then inherit through the estate. The designated beneficiary would have to disclaim 2/3 of the IRA (retaining a 1/3 share for himself) and also disclaim any interest in the IRA that would come from the estate. The other two beneficiaries of the estate would then inherit their respective shares from the estate. The designated beneficiary would base RMDs from his separate account on the designated beneficiary’s life expectancy and only those inheriting from the estate would base RMDs from their shares on the owner’s life expectancy. The disclaimer should be prepared by an attorney with relevant experience.
Permalink Submitted by Bruce Steiner on Sun, 2015-11-08 00:20
The child who is the beneficiary could take distributions over his/her life expectancy, and then share each year’s distribution (net of income taxes) with his/her siblings. That achieves the desired result without destroying the stretch.