IRA Beneficiary Disclaimer
A married man, age 77, dies and names his two children as beneficiaries to his IRA. He has taken his RMD’s since turning 70 1/2. There are no contingent beneficiaries. If the two children disclaim their interest, will the surviving spouse be eligible to use the spouse roll-over option if his Will states that everything will go to her upon his death? She is 64.
Thank you.
Permalink Submitted by Bruce Steiner on Tue, 2008-04-15 03:19
The IRS has issued numerous private letter rulings allowing this. I discuss this in detail in my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf
Bruce Steiner
Permalink Submitted by Denise Appleby on Tue, 2008-04-15 16:56
You may also want to check the default beneficiary provisions of the IRA agreement.
If the children properly disclaims and there is no contingent beneficiary, then it the IRA is treated as if the IRA owner did not designate a beneficiary. Many IRA agreements provide that if the IRA owner did not designate a beneficiary, the beneficiary defaults to the spouse (of the owner).
Permalink Submitted by Kristin Yraguen on Wed, 2008-04-16 17:08
Thank you for your helpful insights. In this case, there is no “default spouse” options in the IRA agreement. It would go to the estate.
In this case, the IRA holder transfered his IRA from one brokerage to another in 2006 and instructed the new firm to set it up as the original which had his spouse as primary and his two daughters as contingent benficiaries. He signed a computerized “pad” and never received a copy of his agreement. We feel that his spouse being left off the IRA was an error on the part of the brokerage firm. We found a previous IRS letter ruling (2006-16039 & 2006-16040) in which has very similar circumstances and they were able to get the trustee to admit error and get the more beneficial distribution period.
My question is if we are able to get the brokerage firm to admit error, would we still need to get an IRS letter ruling?
Permalink Submitted by Bruce Steiner on Wed, 2008-04-16 17:14
The rulings on correcting the beneficiary designation post-mortem have gone both ways: PLR 200616039 thru 200616041 were favorable, while PLR 200742026 was unfavorable.
Getting a ruling via the disclaimer route would seem to be easier.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Kristin Yraguen on Wed, 2008-04-16 17:24
My understanding is if the daughters disclaim then it will go the his estate, which would then go to the spouse, but she would not be eligible for the spousal rollover. Are you saying that, at that point, the brokerage firm would need an IRS letter ruling to do a spousal rollover?
Permalink Submitted by Bruce Steiner on Wed, 2008-04-16 17:55
If the children disclaim, and as a result it goes to the estate, and if the spouse is the beneficiary of the entire estate, then there are lots of rulings that permit the rollver in that situation. Many of them are mentioned in my article, and there have been many (including one that we obtained) after my article was published. But rulings are not binding on the IRS except with respect to the taxpayer to whom they are issued.
From the facts presented, it’s probably not that difficult a ruling to obtain. Whether she’s willing to do the rollover without a ruling is up to her. The risk is that, absent a ruling, if the IRS says the rollover was no good, the whole IRA is immediately taxable. Getting a ruling binds the IRS.