Death of an IRA beneficiary shortly after IRA owner’s death
Anyone know what the options are if a beneficiary of an IRA dies a few months after the owner of the IRA and there has not been an inherited IRA established.
Not sure if the successor benficiary (spouse) of the deceased IRA beneficiary has any strecthing options. I assumed no, due to the fact the funds would probably have to be payable to the deceased beneficiary’s estate. But you know what assuming does. Thanks in advance for any feedback.
Permalink Submitted by Alan Spross on Thu, 2011-03-17 00:34
Depends on what “a few months” is. Do you have the DOD of both IRA owner and surviving spouse? Spouse is SOLE beneficiary? And surviving spouse did NOT name a successor beneficiary? If the surviving spouse did not report the death, they could not have named their own successor beneficiary. Could you clarify the chain of events here?
Permalink Submitted by Bruce Steiner on Thu, 2011-03-17 02:10
The executors of the deceased primary beneficiary may be able to disclaim the IRA, in which case it will go to the contingent beneficiary (or, if none, then in accordance with the default provisions of the IRA, or if none, then to the deceased primary beneficiary’s estate).
In some states, such as New York, court approval is needed for a disclaimer by an executor of a deceased beneficiary. I have done this.
Permalink Submitted by Todd Fincannon on Thu, 2011-03-17 13:44
First to clarify, there are three beneficiaries to the current deceased owner. Chain of events as follows… Ira Owner DOD 09/12/10. Beneficiary DOD 12/10/10. No inherited IRA has been established and the successor benficiary (spouse) of the deceased beneficiary has only been named via a will. The deceased benficiary’s spouse is looking for options to stretch the IRA coming from her Mother-in-laws IRA. The mother-in-law was in her 80’s. Son/deceased beneficiary was 58.
Permalink Submitted by Jose Morales on Thu, 2011-03-17 16:19
At this point you really need to look at the plan document and see what is written regarding beneficiaries. Unless the deceased beneficiary had specifically named a beneficiary for his/her own beneficial share of the deceased’s IRA it most likely will be the estate that must receive any distributions. Regardless, this wasn’t the deceased spouse’s IRA to begin with so the wife of the beneficiary does not have her own “stretch” option.
A disclaimer by the deceased’s estate would most likely mean that his portion of the IRA would be split amongst the two other primary beneficiaries.
Permalink Submitted by Alan Spross on Thu, 2011-03-17 20:04
urusei is correct. There is no new stretch for a successor beneficiary, however the actual RMD for this person depends on future actions.
When the probate process is complete for the will, the executor should have had the IRA interest assigned from the estate to the beneficiary. If this is completed by 12/31/2011 and a separate IRA account established for this beneficiary’s interest, the original beneficiary will be deemed to have created a separate account by the deadline since the original beneficiary is still treated as a designated beneficiary.
Similarly, if the IRA assignment is not completed by 12/31 due to probate delays etc, and the other beneficiaries establish separate accounts for themselves, then the original inherited IRA would be left with only the share of the deceased beneficiary and therefore should be deemed a separate account as well, although the IRS is not clear about this. If the separate accounts are created under either of these scenarios then the successor beneficiary can use the remaining non recalculated life expectancy of the deceased son. Since he will be 59 this year, his divisor for 2011 would be 26.1 and then reduced by 1.0 for each year thereafter. The divisor would be used with this applicable beneficiary’s share of the 12/31/2010 account balance.
If the separate account is NOT created, then the divisor will be determined by the oldest beneficiary of the 3 that failed to create a separate account. For example, if the children were ages 64, 58 and 52 in 2010, and only the 52 year old created the separate account by 12/31, then the 58 year old would have to use the life expectancy of the oldest beneficiary remaining, ie the 64 year old, and the RMD would be larger than if the life expectancy of the 58 applied.
Did not address disclaimers since that does not appear to be the intent in this case. Also, the decedent’s 2010 RMD needs to be distributed ASAP if the decedent did not complete the 2010 RMD.