Spouse to Disclaim IRA?
I have a client whose husband passed away on Aug 30, 2011 at the age of 81. His IRA names his surviving spouse (also age 81) as 100% primary beneficiary. They have 2 daughters and we do not yet know if they are contingent beneficiaries. The spouse does not need the money and would like to disclaim the IRA and pass it to the daughters evenly so they each can utilize the stretch separately by taking RMD’s at their life expectancies. We are still within the 9 month window to disclaim.
Questions are:
If there is in fact no contingent beneficiaries….can the disclaim still happen? I believe if it was disclaimed, the IRA would go into the estate. The Will said…everything to the spouse and then the daughters…equally. If IRA goes into the estate does it negate the stretch even if the IRA does get probated to the daughters?
Other question is….the Will (done many, many year ago) did not appoint an Executor and it will take months to get one appointed. The IRA custodian will not give the spouse any info on the IRA still in her late husbands name (except inherited spousal forms) without executor appointment paperwork. She needs to find out if the daughters are contingent beneficiaries and the 9 month window to disclaim is over on May 30th. Any thoughts on how we get the custodian to provide the necessary info without an executor since that is the info needed to make a decision?
Many thanks.
Permalink Submitted by Alan Spross on Mon, 2012-04-02 21:44
If the daughters are not listed as contingent beneficiaries, and the wife disclaimed such that his estate becomes the beneficiary, she will also have to disclaim for the estate. If the daughters are will beneficiaries, they will get a limited stretch. Their RMDs will be based on the remaining life expectancy of the decedent. If he would have been 81 on 12/31/2011, the RMD divisors for 2012 start at 8.7 and 1.0 is taken as a reduction each year thereafter. In other words, they would have only a 9 year stretch.
If the IRA is large enough, perhaps the wife should not disclaim and gift the net of tax RMDs to the daughters. Then when the wife passes the daughters can use their own life expectancies on what remains.
With respect to the second question, the wife IS the beneficial owner of the IRA until she disclaims it. She is entitled to this information now without any executor. An executor is immaterial unless she disclaims and the IRA goes to the estate. Someone needs to talk to management of the current custodian to get this info, or if that is not possible have the IRA directly transferred to another custodian as a beneficiary IRA. The wife is also responsible for completing his 2011 RMD if it was not fully distributed by his death. The IRS does not consider the distribution of the decedent’s RMD as acceptance of the IRA that would invalidate a disclaimer if she decides to disclaim.
Permalink Submitted by Bruce Steiner on Mon, 2012-04-02 22:31
It’s odd that a Will wouldn’t name an executor, unless you meant that the named executor(s) predeceased the testator and any named successors also predeceased the testator. However, it shouldn’t take “months” to get an executor or adminstrator appointed. Depending on the procedure in the particular state, if the wife and the two daughters are in agreement as to which one or more of them will serve, getting her or them appointed should be routine.
If an IRA is payable to the IRA owner’s estate, his executor cannot disclaim it.
I agree with Alan that the wife should pursue the information as to the contingent beneficiaries.
Since the husband died in 2011, the wife could take the IRA, roll it over, possibly convert to a Roth, and name the daughters (or trusts for their benefit) as beneficiaries. If portability is extended or made permanent (which is likely but not certain), the wife’s estate will get the benefit of the husband’s unused estate tax exempt amount, assuming a Federal estate tax return is filed for the husband’s estate. The wife might want to consider that approach.
Permalink Submitted by [email protected] on Mon, 2012-04-02 22:59
All good information…thank you.
Regarding the year of death (2011) RMD…..if it was not taken by end of 2011, how is this done…on the decedant’s final tax return? This must be done before rollover to her IRA or if she decides to disclaim?
Permalink Submitted by Alan Spross on Mon, 2012-04-02 23:38
It’s preferable that the 2011 RMD be taken out before rollovers or disclaimers, but is not required. The IRS cares mostly that the RMD is taken and taxes paid, but not particular about who does it. The RMD becomes the responsibility of the beneficiary and is taxable to the beneficiary, it is not to be taken by the estate or reported by the estate unless the estate becomes the beneficiary. It is also not reported on the decedent’s final return.
The IRS is accustomed to the year of death RMD not being distributed in that year. When the RMD is taken in the following year, Form 5329 should be added to the recipient’s return requesting that the penalty for late distribution be waived. This is typically granted.
If the daughters were named as contingent beneficiaries, it does not matter how the year of death RMD is divided between them as long as the full amount is taken out. Again, should this be the case, the RMD could be distributed before or after the two of them established their separate beneficiary IRA accounts. For 2012 and beyond, each must satisfy their own RMD. This also applies to the surviving spouse should she retain the IRA. If she converts it, both the year of death and the current year RMDs must be distributed first. As indicated earlier, if the wife wants to take the year of death RMD, this does not eliminate her option to disclaim, but she cannot take out any more before disclaiming or she cannot disclaim.
Permalink Submitted by [email protected] on Tue, 2012-04-03 16:29
Thank you again….your answer was very helpful and crystal clear.