Disclaiming IRA
Mom has IRA and passes away after her RBD. She has 3 daughters. The only beneficiary named was one of the 3 daughters. All 3 daughters agree they would like to have the assets distributed evenly, including this IRA. Can the one daughter that was named as beneficiary disclaim the IRA? If so, at that point would it then go to her estate at which time it would be evenly distributed?
Permalink Submitted by Alan Spross on Fri, 2012-03-09 21:31
First, the IRA beneficiary clause should be examined to make sure that the estate is the default beneficiary, although it almost certainly would be if there is no surviving spouse. Note that if the default wording indicates something like “children of the IRA owner”, there is a problem with the disclaimer because a disclaimer is not “qualified” if a non spouse disclaimant receives property as a result of the disclaimer.
Legal advise should be secured if the default beneficiary is the estate and the disclaiming daughter is also an estate beneficiary. Using disclaimers to repair a flawed estate plan is highly technical and risky, and this situation should be reviewed with competent legal authority. The IRA custodian should also be consulted, although most custodians are more than happy to cut a check to the estate and let the executor wrestle with the tax and legal issues. If all 3 are estate beneficiaries, it might be necessary for a disclaimer be filed for the estate eliminating the IRA beneficiary’s interest in the IRA before that daughter can disclaim the IRA without problems.
This is all governed by Sec 2518 of the tax code. There is also a 9 month time limit after Mom’s death to file a disclaimer.
Permalink Submitted by Bruce Steiner on Fri, 2012-03-09 22:10
This could also destroy the stretchout. There may be other ways to accomplish the same result. The lawyer handing the estate should be familiar with this and should be able to advise her. If not, then she should consult with competent tax/estates counsel who should be able to advise her.
Permalink Submitted by Chuck Snyder on Sat, 2012-03-10 17:37
The beneficiaries to all my IRA’s were my wife as primary and my two sons as secondary. Over a period of a few months, in order for the gift to encompass two years, I gave son one and his wife a large amount of cash. Wanting to be fair but not wanting to give son two cash, I moved a like amount of money into a separate IRA. As this was with Vanguard I could not change the beneficiary designation. Consequently, I drew up an agreement that I had son one and my wife sign agreeing that they would disclaim that particular IRA. Then later I moved that IRA to a new custodian naming son two the beneficiary. However, some time later, I seem to recall reading here that had I become deceased that this would not have worked because by son one disclaiming, the IRA would have passed to his children. And so I wonder if that might be the same in this case.
Permalink Submitted by Alan Spross on Sat, 2012-03-10 19:02
You may be referring to Vanguard’s desire that all IRAs that they hold have the same beneficiary designation. That requirement is probably negotiable in most cases, as I think their main concern is that different beneficiaries often indicate the IRA owner did not intend them to be different. In any event, you are on sounder ground not having to depend on disclaimer promises and having the desired beneficiary named on the IRA agreement.
The other issue of concern over the former disclaimer arrangment describes what would happen had you named your son “per stirpes” or similar designation that his share would pass to his children had he pre deceased you or disclaimed. That is usually the case when showing “per stirpes”, but is not the case if only the son and your wife were named directly and both of them disclaimed. Had they both disclaimed, that IRA would have gone to the remaining named beneficiary, ie son two.
Permalink Submitted by Bruce Steiner on Sun, 2012-03-11 00:07
I think Vanguard has backed off and will let you name different beneficiaries for different accounts, but you should check with them to make sure. It’s usually not a good idea, since values change over time, and subsequent contributions or withdrawals can change the relative values.
The default is that if a beneficiary disclaims, his/her share goes as if he/she had precedeased. But you can override the default. You can usually create any pattern of contingent beneficiaries you want, including different contingencies for death or disclaimer. An example (not necessarily recommended) is that the spouse is the primary beneficiary, and if she predeceases it goes to or in trust for the children, but if she survives and disclaims it goes to a credit shelter trust. Of course, if a beneficiary is not happy with the contingent beneficiaries who would take upon a disclaimer, he/she might not disclaim.
Permalink Submitted by George Bumiller on Sun, 2012-03-25 03:02
I’ve used the separate IRAs, one for each of my kids, so that there’s no issue for them to split up a single IRA, and no problem if one of them fouls up paperwork – only that one is affected.
Since I can _easily_ move assists ‘in kind’ between like (as long as they’re all TIRAs or all Roths), I have the four set up with _identical_ investments.
Permalink Submitted by Alan Spross on Sun, 2012-03-25 03:15
The benefit of this is that there is no need to create separate accounts by the deadline after your death for beneficiaries to use their own life expectancies for RMDs, but more importantly each beneficiary will have immediate and full control of their account and not have to coordinate anything with the others. Some siblings have great difficulty agreeing or coordinating in these situations.
The downside is the extra maintenance of the accounts while you are alive. In that respect you should not feel that you have to keep their value identical to the dollar. You might use a tolerance of an acceptable difference before having to do these transfers.