Disclaimer

Submitted by Bruce Henning on Wed, 2017-05-03 18:51

My client passed away in November 2016 and was 62 years old. He left behind a $1.6 mil IRA 100% to one of his brothers. The brother does not want it all but wants to spread it out as was written in the deceased brothers will. It would be 30% to the one brother, 30% to the mom & dad, and then 10% to the remaining 4 siblings. Can he disclaim 70% of it and then direct the remaining amounts to the mom & dad and siblings so that each can receive their portions in Inherited IRA’s and stretch them? All parties involved want to reduce taxes and use the Inherited IRA stretch.
Thank you, Bruce



Submitted by Alan - IRA critic on Wed, 2017-05-03 20:02

  • A disclaimant cannot re-direct disclaimed amounts as they wish. Before disclaiming the named beneficiary should carefully confirm that the client’s estate is the default beneficiary in the IRA agreement. If client happened to be married at the time of death the spouse may have potential claims against the estate. Otherwise, if client is single as expected and his estate is the default beneficiary of the IRA, beneficiary could disclaim 70% of the IRA and ALSO any interest he might have in the IRA per the will. The disclaimer is not qualified if the disclaimant will receive any of the disclaimed assets as a result of the disclaimer.
  • However, this will not reduce taxes at all because the 70% disclaimed will make the estate the beneficiary of that 70% and the life expectancy stretch will be lost. Since the client passed prior to the RBD, this will trigger the 5 year rule for all the will beneficiaries since they cannot be considered designated beneficiaries. Further, the original beneficiary must create a separate inherited IRA for himself by the deadline or he too will be subject to the 5 year rule.

Submitted by Bruce Steiner on Wed, 2017-05-03 22:34

Instead of disclaiming, a possible solution might be to keep the IRA benefits, stretch them, and share each year’s distribution (net of income taxes) in the desired manner.  The gifts will qualify for the annual exclusion for gift tax purposes, so the taxable gifts may not be very much.

Submitted by Bruce Henning on Thu, 2017-05-04 00:58

thanks to both of you.  Much appreciated!

Submitted by [email protected] on Fri, 2017-05-05 13:13

and if he did keep it as inherited, he should name his own beneficiaries, which could be the other siblings per stirpes, so that their share would go to them/their family, correct? -m

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