IRA beneficiaries

Submitted by Ryan Smith on Mon, 2016-08-01 19:41

Father dies with a sizable traditional IRA with Mother as the only beneficiary and no contingent beneficiaries. Mother dies 10 days later and prior to any action on Father’s IRA. Mother does not have an IRA in her name. There are three children who would like to inherit the IRA as an inherited IRA and stretch the tax deferral.

Is this possible?



Submitted by Alan - IRA critic on Mon, 2016-08-01 22:05

Did father die prior to or after his required beginning date?

Submitted by Ryan Smith on Tue, 2016-08-02 10:30

in this case, after.  I would be interested in the answer in both cases.

Submitted by Alan - IRA critic on Tue, 2016-08-02 18:10

  1. Death on or after RBD – surviving spouse is treated as the beneficiary for RMD calculation unless father was younger, but distributions will go to her estate under most IRA agreements when surviving spouse did not name their own beneficiary. If children are the estate beneficiaries, and assigned their interest in the IRA by the executor, their RMDs would be based on the remaining life expectancy of mother, or father if younger than mother. Expect the IRA custodian to attempt to rush out a lump sum distribution to mother’s estate in this situation, but that should be resisted since even this shorter stretch would be preferable. As in all such cases, the IRA agreement should be carefully checked for beneficiary provisions different than the usual. Owner’s RMD for year of death must also be distributed, if not completed by the owner.
  2. Death prior to RBD – While mother would be treated as the owner in this case rather than beneficiary, she still was not able to name her own beneficiaries, so the IRA will probably go to her estate. So even though mother could is treated as owner, with no beneficiary named by her the 5 year rule is triggered. Had she been able to name her own beneficiaries, they would get stretches based on their own LE, but with no beneficiary named the 5 year rule applies, which is more adverse to the children than if mother had not been treated as owner.
  3. Had father named the children as contingent beneficiaries, mother’s executor could have disclaimed the IRA allowing the children to inherit directly and get LE stretches. Otherwise, the children will not get full LE stretches.

 

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