Beneficiary IRA for Contingent Beneficiary

Submitted by Lisa Burman on Sun, 2019-06-02 00:07

The IRA Holder named a primary and contingent beneficiary. The IRA holder died. Thirteen months later the primary beneficiary died never claiming the IRA. The contingent beneficiary is claiming that the IRA should go directly to her. The IRA provider is claiming that is should go to the estate of the primary beneficiary. What entity is entitled to the IRA; The estate of the Primary beneficiary or the contingent beneficiary? In both cases, the contingent beneficiary ultimately ends up with the money however the taxes consequences are drastically different. If you happen to have case law or IRS guidance on this , it would be greatly appreciated. Thank you.



Submitted by Alan - IRA critic on Sun, 2019-06-02 01:10

  • Because the primary beneficiary never had the account retitled, they could not have named their own beneficiary, although they still inherited the IRA. Therefore, the IRA custodian is correct and the account will pass to the estate of the primary beneficiary unless the IRA beneficiary clause reads otherwise, and that would be quite rare.
  • The IRS has nothing to do with who inherits the IRA, but the tax code determines how the RMD rules apply. In this case the RMD schedule that would have applied to the deceased beneficiary will continue to apply to the estate. But since the estate will wish to close, the executor should assign the IRA out of the estate to the will beneficiary. This beneficiary will be responsible for completing the RMD for the year in which the beneficiary passed, and this is determined by the beneficiary’s age in the year following the owner’s death (except in cases where the original beneficiary was older than the owner and the owner passed after their RBD). The divisor used for that year must be reduced by 1.0 for each successive year.  The tax consequences result from a shorter distribution period (higher RMDs) in cases where the contingent beneficiary was younger than the original beneficiary.

Submitted by Lisa Burman on Sun, 2019-06-02 01:49

The primary beneficiary didn’t have a will.   Neither did the IRA holder.     The state law goes to their only child.   Does that clarify?   Thanks

Submitted by David Mertz on Sun, 2019-06-02 01:20

Was the primary beneficiary the spouse of the deceased IRA holder and sole beneficiary of the IRA?  If so, did the primary beneficiary die before the end of the year that the IRA holder would have reached age 70½?

Submitted by Lisa Burman on Sun, 2019-06-02 01:45

The primary beneficary was the spouse (wife)  of the decisased IRA holder,   the contingent beneficiary was their only child.    Both the IRA holder and primary beneficary were in their late 70’s

Submitted by David Mertz on Sun, 2019-06-02 02:52

  • Given that the wife died only 13 months after the IRA owner died, it’s unlikely that the wife would have defaulted to owner status, so ongoing RMDs would be determined as Alan-iracritic indicated.
  • However, if the wife died after the year following the year in which the IRA owner died (which, given the 13-month interval, appears could probably have happened only if the IRA owner died during the month of December), the wife would have defaulted to ownership of the IRA due to not taking the necessary RMD as beneficiary in the year following the year of the IRA owner’s death.  In that case the wife’s estate as default beneficiary would be the *original* beneficiary of the wife, not successor beneficiary, and the wife’s estate would be responsible for completing the owner RMDs required of the wife for the two years following the year of death of the IRA owner.  RMDs for years after the year of the wife’s death would be based on the wife’s year-of-death life expectancy, reduced by one for each year following the wife’s year of death.

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