Decedent has two children. She passed away at age 64, leaving an IRA worth approximately $730K. The primary beneficiary of the IRA is the decedent’s revocable trust. The contingent beneficiaries of the IRA are decedent’s two sons in their individual capacities.

The same two sons are co-trustees of the decedent’s revocable trust. They are also the sole beneficiaries of the revocable trust, except that there is one additional beneficiary of the trust for whom a specific bequest of a fixed dollar amount is provided. Funds sufficient to satisfy that specific bequest exist outside of the IRA, so, as a practical matter, the two sons will end up splitting the IRA funds 50/50, whether the funds pass through the trust or pass directly to the sons as contingent beneficiaries.

The sons are trying to achieve two objectives. First, the beneficiary of the specific bequest in the trust (their aunt) is much older than the two sons. The two sons are concerned that, if the IRA passes to the trust, the much older beneficiary’s life expectancy will be used to determine RMDs. Second, the sons are concerned that if the IRA passes to the trust, the funds from that IRA may be subject to claims by the decedent’s creditors of approximately $25K that the sons would prefer to negotiate down if they have the leverage to do so. A probate proceeding will be opened in Florida to deal with some real estate in Florida, so that might provide a venue for those creditors to make claims.

With those objectives in mind, and the desire to minimize any income tax, estate tax or gift tax exposure, the sons are considering whether it makes sense for the trust (the IRA’s primary beneficiary) to disclaim the IRA, such that the IRA would pass directly to the sons as contingent beneficiaries. Their theory is that, in doing so, they would get the ability to use their own life expectancies to determine RMDs, and that the IRA would not be subject to claims by the decedent’s creditors since it would pass directly to the sons.

The ultimate question is whether such a disclaimer would be a “qualified disclaimer” under 26 USC 2518. Specifically, 2518(b)(4) says that one of the requirements of a qualified disclaimer is that the interest pass “to a person other than the person making the disclaimer.”

In this instance, it would seem that the requirement is met, since the “person” making the disclaimer (i.e., the trust) is a different “person” than the recipients of the disclaimed interest (i.e., the sons).

However, I am wondering whether you are aware of any guidance suggesting that the requirement would not be met on the basis that the same two sons are sole trustees and the main beneficiaries of the trust. In other words, would the law “look through” the trust to its ultimate beneficiaries or to its trustees in determining whether the person making the disclaimer is the same as the person ultimately receiving the IRA assets.

I’d also be interested to know whether you are aware of any other pitfalls or potential consequences of having the trust disclaim those IRA assets.