Ira with the estate as beneficiary
I had a life insurance client that had an ira with major brokeage firm at his death his spouse found out that his estate was the beneficiary of a 1.1 million ira.I just can’t imagine this but it does happen.His wife has ask me what options she has,before she found out about the beneficiary designation I had suggested she disclaim the ira and allow her children the stretch option because of the size of the estate.What suggestions do you have?
Permalink Submitted by Alan Spross on Tue, 2011-04-26 17:47
1) Did he pass prior to his required beginning date?
2) Does he have a will? If so, is the spouse the sole primary beneficiary? Is she the executor?
3) Spouse does not need any of these assets? Is her estate large enough for federal estate taxes?
Permalink Submitted by James E Cobb on Tue, 2011-04-26 21:49
1 Dob 4/4/1940 so beginning date would be 4/1/2011 to my knowledge he had not taken a distribution before his death. 2. He does have a will and the beneficiary is a trust for life time of wife then children 3,Irr.trust
3 She does not need the money and her estate is large enough for estate taxes. I also need to mention this a community property state.
Permalink Submitted by James E Cobb on Tue, 2011-04-26 22:05
[quote=”[email protected]“]1 Dob 4/4/1940 so beginning date would be 4/1/2011 to my knowledge he had not taken a distribution before his death. 2. He does have a will and the beneficiary is a trust for life time of wife then children 3,Irr.trust
3 She does not need the money and her estate is large enough for estate taxes. I also need to mention this a community property state.[/quote]
Permalink Submitted by Alan Spross on Tue, 2011-04-26 23:45
This is a bad situation.
Since the trust was not named directly as beneficiary but apparently is receiving the IRA assets through a pour over will, the trust cannot be considered qualified and since he apparently passed prior to his RBD, the 5 year rule applies with respect to the RMD requirements.
In addition, if the trust indicates that the spouse is only entitled to income from the IRA with the children as remainder beneficiaries, I doubt if the spouse will be able to do a rollover to her own IRA, which is the only way to salvage a stretch from the IRA. She could still disclaim her interest in the trust, which would result in the children receiving the IRA, but that will not get them a stretch because the trust was not named as beneficiary on the IRA agreement. The children could split the distributions over 6 taxable years, perhaps 7 if they used a fiscal year. That would get the IRA out of her gross estate but of course the entire estate tax situation is up in the air again after 2012, so we really do not know how her gross estate will match up to what Congress comes up with.
Another issue is whether her disclaimer can apply to her 50% community property interest in the IRA or just the other 50%.
Perhaps Bruce Steiner can come up with other options to pursue under these circumstances.
Permalink Submitted by Bruce Steiner on Wed, 2011-04-27 02:59
It may be possible to get the IRA to the spouse with enough disclaimers, or to get 50% or all of it to the spouse as community property.
It’s hard to be more specific without seeing the documents, knowing the background, and knowing what state’s law governs. But given the amount of money involved, it should be worth some effort. She should consult with tax/estates counsel, who can give her specific advice based upon the particular facts and her objectives.
Here is an article I wrote on this subject in the October 1997 issue of Estate Planning, which may be helpful: http://www.kkwc.com/docs/AR20050125164755.pdf.