Can contingent bene name succ bene, disclaim and $ go to suc
Spouse it primary bene. Adult Child is contingent bene. Presuming spouse disclaims and IRA passes to adult child. Can adult child name his child as successor bene, then disclaim and full stretch potential passes to succ bene?
In essence I am trying to figure out how logistically money can pass to owner grandchild without having to name grandchild as contingent bene at the beginning.
I have family of four with different degress of financial success for the adult children. Two don’t need the stretch IRA but aren’t ready to give it up now and have grandparent name their grandchildren as contingent bene instead of the adult child.
Permalink Submitted by Al Fry on Fri, 2007-11-16 20:02
You should be able to name child as contingent; grandchild as tertiary. Then it could work. A disclaimant can not direct where it goes.
Permalink Submitted by Alan Spross on Fri, 2007-11-16 21:03
I agree with Al. The original plan would be a violation of Sec 2518 for a qualified disclaimer because exercising the power to name a successor beneficiary would void the disclaimer.
However, if the IRA custodian will accept a tertiary beneficiary, depending on the date of death and the time used for the first disclaimer, 9/30 of the year following death could conceivably pass before the second disclaimer is executed. Each disclaimer should get it’s own 9 month execution period, but the beneficiary for RMD purposes is not subject to extension. Therefore, if both disclaimers have not been done prior to 9/30 of the year following death, the grandson would not get his own stretch, but would get that of his parent.
This strategy has been referred to as “cascading beneficiaries”. Partial disclaimers in the series are also possible. Better have a large professional IRA custodian for this to work without problems.
Permalink Submitted by Theodore Gudorf on Sat, 2007-11-17 17:43
Seems like an IRA Standalone Trust is the better solution.
Ted Gudorf, Esq.
Permalink Submitted by Gayle Saylor on Sat, 2007-11-17 20:54
On my Vanguard account, the secondary beneficiary is listed as “to my descendants who survive me, per stirpes”. Will that accomplish the “cascading beneficiaries” so that any adult child could disclaim and the full stretch of his portion of the IRA could pass to his child(my grandchild)?
Permalink Submitted by Alan Spross on Sat, 2007-11-17 23:37
It could, but “per stirpes” is somewhat less specific than naming the contingent beneficiary, as it most follow the generation formulas, and ID issues with the IRA custodian are more tedious. Again, this type of “cascading” only moves a disclaimants stretch to a younger generation, it does not provide a new stretch based on the younger generation’s life expectancy.
Permalink Submitted by Bruce Steiner on Sun, 2007-11-18 16:45
“Per stirpes” is actually more specific than trying to name the individuals. Someone could have another child between now and the IRA owner’s death, or someone now living could die between now and the IRA owner’s death. “My issue per stirpes” is precise. Trying to say the same thing without using those words is difficult, and if you do it in such a way as to create an ambiguity, it may result in litigation.
If a child disclaims his/her share of the IRA, such that his/her share goes to his/her children, the grandchildren can stretch their shares out over their life expectancies, as if they had been named as the primary beneficiaries.
Unless the amount is too small to warrant administering trusts, we generally prefer to leave IRA benefits (and other assets) to children (and grandchildren, etc.) in trust rather than outright. There are some special restrictions needed in order for a trust that receives IRA benefits to be able to stretch them out over the oldest beneficiary’s life expectancy. So, unless you want to subject the non-IRA assets to the same restrictions, each beneficiary’s share of the IRA benefits will have to go to a separate trust from his/her share of the non-IRA assets. These trusts can be created either under the Will or in a separate trust instrument — it’s merely a matter of style. For more on this, see my article on trusts as beneficiaries of retirement benefits, in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf