Nonspousal Inherited Bene - In Community Property State

Submitted by Michael and Dean Meniktas on Tue, 2014-09-16 19:24

My client inherits her mother’s IRA, California’s a community property state, requiring consent from my client’s(bene of her mother’s IRA) husband that she intends NOT to place him as her bene on her inherited IRA; is this community property law nonapplicable in this case since her interitance is not community property?…most custodians still are requiring to get consent from the spouse for this action. Please advise and comment,thanks.

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Permalink Submitted by Alan - IRA critic on Tue, 2014-09-16 20:19

Inherited assets are NOT community property and in the case of an inherited IRA, there is no way to commingle them with community property either. Such custodians are wasting the beneficiary’s time and their own time as well by requiring a spousal waiver from beneficiary’s spouse, but they certainly needed a waiver from the OWNER’S spouse if married at the time the daughter was named beneficiary. Extending this to the beneficiary’s spouse is probably due to either litigation pananoia or failing to understand that an inherited IRA is NOT community property of the beneficiary.

Permalink Submitted by Gary Williams on Fri, 2017-02-10 16:19

Both CA & TX are CP states. But CA considers income from Seperate Property to be Seperate Property, while TX (generally) considers such income to be CP. So, if the same situation occured in TX would the beneficiaries spouse ever have any CP interest in the Inherited IRA (i.e. perhaps some “income” component therof) by virtues of this (TX) rule? Or is there any chance that CP & SP funds could erver be comingled in the Inherited IRA by virture of this (TX) rules (assuming, for example that all “income” is retained within the Inherited IRA, except for the RMD for the non-spousal beneficiary)?

Permalink Submitted by Gary Williams on Sat, 2017-02-18 13:16

I did a bit more on-line digging into this. The articple attached is a good summary of TX Marital Property Law by a local Austin attorney.http://www.btjlaw.com/index.php/articles/texas-marital-property-law-101Assuming this all applies to Inherited IRAs in TX (which I presume it does, I know if no explicit exception), then it seems pretty clear that you could have a mixture of Community Property Interests and Seperate Prpoerty Intersts within an inherited IRA in TX, unless care is taken to periodically distribute the interest and dividends on IRA investments out of the IRA and into a Community Property Account. It looks like the burden is on the IRA owner to make and document such distributions if he/she wishes to maintain the Inherited IRA as Seperate Property, or alternately to monitor and document the accumulation of interest and dividends within the Inherited IRA in order to ascertain what a spouses Community Property in the Inherited IRA actually is. Otherwise, there would appear to be a risk that commingling could occure, which might (at least theoretically) cause much or all of the Inherited IRA to be deemed Community Property, via the Community Presumption?In my specific case, and considering the Community Out First Rule, the non-spousal RMDs alone have been enough to sweep all interest and dividends from the Inherited IRA, and preserve it as 100% Seperate Propoerty — but all of this must still be documented. Also a similar concern exists (under TX law) for the Taxable Seperate Property account that I depostit RMDs into. Unless I periodically distribute the CP interests comming into this account (from the the Inherited IRA) plus any interst and dividends earned within this account to a joint (Community Property) account I will have a mixture of CP and SP interests in this taxable Seperate Property Account. So comprehensive records of CP interests flowing in, interest & dividend earnings within, and CP distributiions from this account must also be kept, to either ascertain the CP interest within this account, or demonstrate that there is none. Otherwise, this account too coould be deemed Community Property by the Community Presumption?I’m not a layer or a CPA, and don’t know if there is any case law on this, but this would seem (to me) to what the TX law implies. Any thoughts or comments?