Beneficiary disclaiming a portion of her account
Our client passed away June 2012 at the age of 67 leaving his sister as sole beneficiary of his IRA. Sister wants to disclaim 75% of the assets…we are looking to move 75% of the assets to 3 different Bene IRA FBO of the other 3 siblings (25% each). My questions is: Will all 4 of the siblings receiving assets from the decendants IRA be able to spread the RMD’s over their life span beginning 2013 or does the sister have this option and the other 3 have to follow the 5 yr rule?
Permalink Submitted by mk foss on Mon, 2012-07-09 16:43
Beneficiaries receiving amounts from a disclaimed IRA can use their own life expectancy if they were the named contingent beneficiaries. If there was no contingent beneficiary and the estate becomes the beneficiary – the sibling who was named as a beneficiary would need to disclaim 3/4 of the IRA and then all of the IRA that would come to her as a beneficiary of the estate or it wouldn’t work. If the other 3 are receiving benefits because the disclaimer benefited the estate – they cannot use their life expectancies; they’d use the five year rule.
Disclaimers are often more complicated than they look at first. Some families uses intrafamily gifts to even out benefits when the amounts aren’t huge. Remember that the named beneficiary is not the one who decides where the disclaimed benefit goes – that choice was made by the original owner of the account who either named contingent beneficiaries or did not.
Permalink Submitted by Wendy Mommaerts on Mon, 2012-07-09 17:29
We do see that the decendants mother is named as contingent…the primary beneficiary wants to split the IRA between her other 3 siblings….with the mother being a contingent does change things?
Permalink Submitted by Alan Spross on Mon, 2012-07-09 17:59
Yes, if the estate is the default beneficiary on the IRA, it would take both a partial disclaimer from the primary and a partial or full disclaimer from the mother to get these funds into the estate. And with all that, the siblings will end up with the 5 year rule if they are even named as beneficiaries in his will.
Further, if the client did not name the other siblings as IRA beneficiaries, they may well not be beneficiaries under his will either. On the other hand, if the other siblings are taken care of with non IRA assets, then the current primary may not need to disclaim.
Perhaps the current primary can consider remaining the beneficiary and simply making annual tax adjusted gifts to the others each year. Her estimated tax rate vrs that of the siblings should be considered as well as the total size of the IRA, annual gift exclusion of 13k etc.