Disclaiming an IRA
Beneficiary designation on an IRA was a trust that does not qualify for stretch treatment. If the trustee disclaims the IRA would the default beneficiary be the estate? In this case, does the entire IRA need to be distributed at one time and taxes payable for the entire amount of the IRA? Could the executor of the estate distribute to the estate beneficiaries so that the tax is owed at the lower individual tax rate vs the higher estate income tax rate?
Permalink Submitted by mk foss on Thu, 2014-05-01 17:42
If the trust does not qualify for stretch treatment, the RMD situation is likely no different than if the estate became the beneficiary because of a disclaimer. When an estate or nonqualifying trust is the beneficiary, RMDs use the remaining life expectancy from the single life table (if the decedent was receiving distributions after his/her RBD). The entire amunt is never taxed at one time unless the trustee or executor withdraws it all at one time. Whether it’s an executor or a trustee, distributions within the same tax year as the IRA withdrawal will result in the tax liability being transferred to the beneficiaries because they’ve received assets. You should never disclaim an IRA until you know exactly where the benefits will end up. You should consult the IRA custodian and/or obtain the IRA custodian agreement.
Permalink Submitted by Alan - IRA critic on Thu, 2014-05-01 19:40
And if IRA owner passed prior to the RBD, the 5 year rule would apply if the trust was not qualified for look through treatment. With the 5 year rule, distributions can still be spread over 6 years.
Permalink Submitted by Bruce Steiner on Thu, 2014-05-01 22:30
Check to see whether a trustee can disclaim, and if so, whether court approval is needed. In New York, for example, a trustee can’t disclaim, though you might be able to accomplish the same thing if all of the beneficiaries of the trust disclaim their interests in the trust. Also check to see if there’s a way you can get the trust to qualify for the stretch. See my article on trusts as beneficiaries of retirement benefits in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal: http://www.kkwc.com/bio.php?r=30