I have a new client whose husband just passed away. He had an IRA at Schwab that had no beneficiary listed (primary or contingent). Schwab mentioned that because there was no listed beneficiary, they would distribute assets to his estate and his wife wouldn’t be allowed to take advantage of tax exempt growth. Is there any way around this rule to make his wife the default beneficiary? Also, is this the only option Schwab allows in this situation?
She may be able to roll it over. See my articles on this subject in the October 1997 issue of Estate Planning, http://kkwc.com/wp-content/uploads/2015/04/AR20050125164755.pdf, and the June 2015 issue of Trusts & Estates: http://kkwc.com/wp-content/uploads/2015/08/IRA-Rollovers-Making-this-option-possible.pdf.
As Alan commented and as described in the referenced article, it may be an advantage if the surviving spouse is the executor. Since one of the children is currently named as executor, it may be possible for the executor to resign or decline to serve, and have the surviving spouse appointed. This may improve the ability to transfer the IRA to the surviving spouse, depending on the totality of circumstances of the estate..
Permalink Submitted by Alan - IRA critic on Tue, 2017-07-25 04:41
There are no options to the default beneficiary specified in the IRA agreement. The IRA must therefore be titled to the estate and the husband’s will determines who the estate beneficiaries are. If the wife is the sole beneficiary under his will, there are several IRS letter rulings that will allow her to do a rollover to her own IRA. It should not be necessary for her to secure her own letter ruling, but it locating an IRA custodian that will open an IRA for her to receive the rollover may present a challenge. It may be somewhat easier if his wife is also the executor of his estate. Who is his will beneficiary and who is the executor?