Change of Beneficiary after death
IRA owner passed away with only one of his three children named as beneficiary, no contingents named. All three children agree that they would like the IRA split evenly.
1. Is there any way to retroactively change beneficiaries to reflect all three children and have stretch distribution available for all three?
2. If sole beneficiary disclaims 2/3rds of the IRA, then I assume the IRA agreement provisions prevail, correct?
3. If yes to #2, and by chance, the agreement specifies something like “children”, any chance that that would suffice in allowing stretch distributions for the other two?
Thanks.
Permalink Submitted by mk foss on Wed, 2011-03-02 19:44
You can’t change the beneficiaries of the IRA after the death of the owner.
If the named beneficiary disclaims the IRA in full, he/she cannot get back through the disclaimer or it would violate the disclaimer code section.
If the named beneficiary disclaims 2/3 of the IRA, he/she would also have to disclaim any interest that would have come through the working of the disclaimer. By this I mean that if the default beneficiary (when no contingent is named); they would have to disclaim any interest in the IRA they would receive as an estate beneficiary. If the default beneficiary is the children, he/she would have to disclaim any interest that might be received as a contingent beneficiary by default.
If the children are the default beneficiaries and receive an interest because of the disclaimer, they can use their own life expectancies. If they receive the IRA as estate beneficiaries, they will need to use the life expectany of the owner. That’s assuming he was over 70.5 at death, if the owner was younger – a 5-year payout would be required for beneficaries receiving as an estate beneficiary.
Everytime I try to type beneficiary I wish there was a spell check on the forum!
Permalink Submitted by Sean Curley on Wed, 2011-03-02 20:42
Thanks, and am always open to any other input others may have, too.
Regards.
Permalink Submitted by Alan Spross on Wed, 2011-03-02 21:00
If the circumstances fit and the IRA is small enough, the designated beneficiary could run the distributions through their own tax return and gift a tax adjusted amount to the others each year. The annual gift exclusion is 13,000 and may be enough to cover the siblings gifts.
This works better if the designated beneficiary is younger than the others and in a lower tax bracket than the others, but could still be a useful strategy in other cases. This would probably not work well unless all the parties understand the issues, get along well, and are willing to cede control to the named beneficiary, who will be responsible for RMDs, taxes and naming successor beneficiaries. There is also the issue of how the IRA is invested, and extra accounting needed in the event one of the siblings wants a larger distribution than just their RMD in a given year.
First thing to check on is the default beneficiary clause in the IRA, and if the estate is the default, what the will indicates. Keep in mind the disclaimer limitations in the prior post.
Permalink Submitted by Bruce Steiner on Wed, 2011-03-02 22:40
Even if the decedent signs a new beneficiary designation, we’ll never know about it.
It’s worth checking to see if the default would be to all three children. In that case, it might be possible for the one child to disclaim 2/3 of the IRA. As Mary Kay points out, the drafting may be more complicated than it appears.
Alan’s suggestion is worth considering. If the family gets along, the one child could share the distributions each year (net of income tax) with the others. Each year’s transfers would be gifts, but it may be possible to keep the gifts within the gift tax annual exclusion.
Another possibility is for the one child to disclaim some other assets to even up the others. If the disclaimed assets would go to the first child’s children, they would also have to disclaim. If any of them are minors, then, depending on state law, court approval might be needed for disclaimers by the minor grandchildren. We’ve obtained court approval for such disclaimers several times.
The original poster should consult with tax/estates counsel, who can provide more specific advice based upon the particular facts, and his/her objectives.