No Beneficiary

Submitted by Grant Chambers on Tue, 2017-02-07 18:22

My father died last year with no apparent beneficiary on the IRA. I am one of the two beneficiarys (and his son) in the will. The will states that all accounts without beneficiaries roll into the trust. I am one of 3 beneficiaries in the Trust. I have read some IRA’s default to spouse or even children when no beneficiary. Apprarently, the IRA can not go into private without my signature.

I’m wondering what questions I should ask and how careful I should be letting the executor (a trust beneficiary and not a child of the deceased or an estate beneficiary directly) just handle it all without talking to someone directly?

Are there questions I should ask before signing anything?

My sister and I are completely aligned on this and just want any advice to protect our interest. Could we find out if there is any chance the IRA defaults to children? Are there any other considerations we should be aware of?

Thanks



Submitted by Alan - IRA critic on Tue, 2017-02-07 19:39

  • First, get confirmation or check the IRA agreement that your father’s estate is the default beneficiary. As you indicated there are some agreements that have surviving spouses and then children as default beneficiaries. If his estate is indeed the default beneficiary, his will results in the trust becoming the IRA beneficiary subject to the terms of the trust. This cannot be treated as a qualified trust because it was not included in the IRA beneficiary listing.
  • As a beneficiary of the trust you are entitled to copies of the trust so you can understand the provisions that the trustee must implement. The trust may or may not be allowed to terminate in which case the IRA could be assigned to the trust beneficiaries. Otherwise, the trust will continue and all RMDs and other distributions must be made to the trust and either passed through to the beneficiaries or accumulated in the trust. The latter case will result in higher tax rates on the RMDs.
  • Since the estate will be treated as the IRA beneficiary for RMD purposes, the IRA will have to be drained under the 5 year rule if your father passed prior to his required beginning date (4/1 of the year following the year he would have reached 70.5). If he passed after that date, then the IRA RMDs will be based on his remaining life expectancy using his age in the year he passed.
  • It is not clear what you mean by “IRA going into private”.  The trustee will have to provide any trust data including the EIN that the custodian wants. Is the will executor and trustee of the trust the same person?
  • You and/or other beneficiaries may need to hire your own legal counsel if you encounter any problems with the process or the trustee. The will must be probated, so the entire process might take some time. Since legal expenses are high, your decision about legal counsel would be affected by the amount of this IRA or other assets you might inherit.

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