Disclaiming an IRA

Submitted by Josh Harmon on Wed, 2019-05-08 19:16

Had a client die with her son as the beneficiary of several IRAs. Client’s husband is deceased. There were no contingent beneficiaries. The son would like to give 1/3 of the IRA assets to his two siblings. If he disclaims one or more of the IRAs, will the assets transfer to the other two children?



Submitted by Alan - IRA critic on Wed, 2019-05-08 19:49

  • The son cannot give or direct the account, it must pass according to the documents in place. The beneficiary clause in these IRA agreements needs to be examined to determine the recipient of the account had the client not named a beneficiary. Most likely it would be client’s estate, and if so who are the beneficiaries under client’s will?  If no will, her children would probably inherit under the state intestacy provisions, but there is a problem in that the son would likely receive a share under any will or state provision. The disclaimant (son) cannot receive a share as a result of a disclaimer or the disclaimer is not qualified. Therefore, unless the applicable documents specify otherwise, a disclaimer will not work. And if that is the result the son might consider the option of gifting a tax adjusted amount annually to take advantage of the gift tax exclusion. This option can be an on going hassle each year compared to a one time disclaimer.
  • Another consideration of a disclaimer is the affect on the stretch. If the estate inherits a portion of an IRA account, the estate beneficiaries do not receive a life expectancy stretch. If client passed after the RBD, the remaining life expectancy of the client would apply and if client passed prior to the RBD, the 5 year rule would apply. The son would probably still be able to receive his stretch if he established a separate inherited IRA by the deadline.
  • With several inherited IRA accounts, the default provisions may differ, and the custodian’s willingness accept assignment of an inherited IRA out of the estate will definitely differ. Clients’s estate cannot close in that case until the estate’s interest in the IRA ends, so many issues for client’s executor when a disclaimer will pass assets to an estate.
  • Of course, the IRA balance must be considered when weighing the disclaimer option, and legal counsel might be required.

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