IRA inheritance disclaimed and reverted to estate so spouse of decedent can inherit

Submitted by william mcdavid on Mon, 2021-05-10 18:04

Married man, age 64, died and his IRA beneficiary was his Father. Father disclaimed, so his decedent son’s wife who should have been the beneficiary can inherit his IRA. Custodian plans to write check payable to estate, but custodian has been asked to take no action until further guidance is obtained. How can wife inherit husband’s IRA from his estate and make it hers without the distribution from the estate to her being a taxable event. What step by step actions need to be taken to achieve the intended objective?



Submitted by Alan - IRA critic on Mon, 2021-05-10 21:04

Yes, the estate executor should make it clear to the custodian that they are not to issue a distribution until requested by the executor. Is the widow the sole beneficiary of decedent’s will and the executor? If so, she can simply assign the inherited IRA to herself as beneficiary, and can then elect to assume ownership of it or wait until she is 59.5 if under 59.5. In other cases, it might be more challenging to get custodian cooperation based on prior IRS PLRs. The larger and more experienced the custodian is, the more likely they won’t throw up roadblocks including asking the widow to apply for her own PLR. The vast majority of prior PLRs favor the surviving spouse in many different fact patterns. If the custodian appears over their head, the executor should probably transfer the IRA to a larger more cooperative custodian. The specific actions the executor should take depends on the details, and they may be less than favorable if his will reflects his IRA beneficiaries, or if he even has a will.

Submitted by william mcdavid on Tue, 2021-05-11 14:55

Alan, thank you for your reply.  The widow is the sole beneficiary of the estate.  Does estate have to have some specially titled account to receive the money?  How does wife’s IRA account need to be titled?  Does estate need to disburse the money to wife’s IRA account within 60 days? Would estate send wife a 1099R showing a rollover code in box 7?  Alan, thanks so much for your help!

Submitted by Alan - IRA critic on Tue, 2021-05-11 15:58

I assume the custodian has accepted the disclaimer and the IRA is now titled showing the estate as beneficiary. What is wife’s age?  That determines when she would elect ownership of the inherited IRA or whether she needs penalty free distributions if under 59.5. Also, if she is older than him, she could delay any distributions until the year he would have reached 72.
As indicated above, it would be better if no distribution was made to the estate, which would trigger a 1099R and have to be reported on Form 1041, then passed through to wife. Distribution to the estate also triggers the stress of a 60 day rollover deadline which could be troublesome if custodians do not cooperate. This can be avoided if there is no distribution until she needs one after the IRA is retitled either with her as beneficiary (executor assigns the IRA out of the estate to wife) or to her as owner.

Submitted by william mcdavid on Thu, 2021-05-13 11:01

Alan, I really appreciate help!  Know that custodian has accepted disclaimer!  Wife is 60 years old.  As you said, it would be best to have no distribution to the estate.  So executor can assign IRA to her, and its possible that custodian will retitle husband’s IRA in wife’s name?  This would be best course of action.  Note that custodian only wants to write check to estate. Would we send an assignment letter to custodian signed by executor to achieve our objective, knowing that we may need to change custodians?  

Submitted by Alan - IRA critic on Thu, 2021-05-13 15:58

Yes, a formal letter from the executor requesting that the IRA be transferred to wife, who can do a spousal rollover to her own IRA. Perhaps indicating that the spouse is the only beneficiary of the estate and she will transfer the IRA to another custodian if they wish will result in the custodian being more cooperative. Executor should reiterate that no distribution is to be made to the estate. While the custodian likely knows this can be done, they may hide this knowledge hoping to make the anti consumer distribution to the estate.
The following paper from noted expert Natalie Choate reviews the background for these assignments. Generally, for these purposes a trust and estate are treated in the same manner. Applicable section starts on p 10 if you are interested:    TrustAsBene2019.pdf (epcnnj.org)

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