Deceased (married) client left IRA to her Estate. IRA Custodian allows for the IRA to bypass the Estate and go to a non-spousal IRA for the surviving spouse (I was told it had to be a non-spouse to bypass…only way to do a spousal is if the Estate disclaims the IRA). Once the non-spousal IRA is set up and funded, does the spouse take distributions based on the 10 year rule? Thank you!
So the IRA Custodian gave us two options for getting the IRA to the surviving spouse and out of the Estate IRA:
1). Fill out a form to BYPASS the estate. This would allow for the assets to the surviving spouse as Inherited Beneficiary IRA (what they refer to as a “non-spousal” IRA because the spouse is assuming ownership).
2). Estate would disclaim the IRA and then it would pass directly to the surviving spouse as a Spousal IRA (where the spouse can take ownership and take RMDs based on his age).
The decendant did have a will and according to the attorney, the will leaves everything to a Joint Revocable Trust where the primary beneficiaries of the trust are the decedant and her spouse. I have no idea how to direct the surviving spouse (or his kids) on how to handle this as the attorney is not offering much help (the CPA has never dealt with this type of situation). I was told to get the IRA into the name of the spouse (by the attorney). However, I am concerned if the Trust is the beneficiary of the Will then is the Trust technically the receiver of the IRA and not the surviving spouse? Would the Estate need to go through probate since the assets were technically left to the Estate? I am an assitant with no experience in this area at all! Any help you can offer would be greatly appreciated! Thank you so very much!
OK, the custodian appears amenable to accepting a form signed by the executor, which may be a substitute for a letter from the estate executor to assign the inherited IRA out of the estate to an inherited IRA for the spouse. This has always been the usual procedure and the IRS has always approved it in letter rulings if the surviving spouse is the will beneficiary or even if there is no will. But you are correct that inclusion of the trust will complicate this process.
Some questions – 1) Is the IRA custodian providing this form? 2) Who is the executor of the will, and who is the trustee of the trust? 3) Is the attorney the same one who devised this estate plan? If so, he should explain this estate plan.
Normally, if the deceased spouse felt the IRA (and other assets) should be left to a trust for the spouse, they would simply name the trust as the IRA beneficiary. That would avoid probate and the trustee of the trust may or may not have discretion to make distributions out of the trust to the surviving spouse. Depends on the terms of the trust. But the IRA custodian may be legitimately concerned about their legal liability if they simply create an inherited IRA for the spouse (not the trust or the estate) and other trust beneficiaries may not be happy.
The IRA custodian will probably only accept directions from the executor and there will probably be hold harmless wording that attempts to avoid any liability for the executor’s decisions.
Permalink Submitted by Alan - IRA critic on Wed, 2024-11-20 17:54
An inherited IRA with the spouse as beneficiary cannot be treated as a non spousal inherited IRA.
Did decedent have a will and if so, is the spouse the beneficiary? There have been years of IRS letter rulings that allow a surviving spouse that is the estate beneficiary to roll over a distribution to the estate to the spouse’s own IRA, but the IRA custodian needs to understand this and cooperate. This custodian seems to be going down an entirely different path.
If the surviving spouse is able to do the spousal rollover through the estate, they will use the Uniform Table for RMDs. However, if the surviving spouse is under 59.5, instead of the spousal rollover, the executor could assign the inherited IRA out of the estate to an inherited IRA which the spouse could retain until 59.5 and then do the spousal rollover.
As for the executor disclaiming the IRA, that may only be legal in a very few states and in some of those states the will must give the executor this power. Someone who left their IRA to their estate will not have a will that contains such a provision.