Disclaimers

Submitted by Richard Ernst on Mon, 2015-01-12 15:35

I had an 80 year old client who recently passed away. She had a substantial IRA with her son listed as the ” Primary ” benefactor. He is a well to do executive who is thinking of ” Disclaiming” some or all of the IRA. His two children are listed as the “Contingent” beneficiaries.

My question is: What is the time frame for disclaiming the IRA? I am assuming it has to be done within 9 months. However, I have read that the ultimate beneficiaries of an IRA must be determined by September 30th of the year following death.

Thank you for your assistance.



Submitted by Alan - IRA critic on Mon, 2015-01-12 15:42

If son is the only beneficiary, since the disclaimer must be filed with the custodian within 9 months of the date of death, the 9/30 date is moot. That date is the deadline for beneficiaries to be paid off or disclaim and they will not be considered designated beneficiaries. But since the disclaimer will do that and 9/30 of the following year cannot arrive prior to the 9 month disclaimer deadline, the 9/30 date can be ignored.



Submitted by Richard Ernst on Mon, 2015-01-12 16:08

Alan, I am not sure I follow.  What if the son was listed as a Primary Beceficiary along with a Charity.  The Charity would have until September 30 of the year following death to take it’s share.  Isn’t that correct?  Doesn’t the son have the same time frame to disclaim?  Is it based on having multiple beneficiaries?  Sorry for the confusion. 



Submitted by Alan - IRA critic on Mon, 2015-01-12 18:08

  • That is correct about the charity, but my prior post assumed the son was the sole beneficiary. A qualified disclaimer under Sec 2518 must be filed within 9 months of death which will never be a longer period than the 9/30 date.
  • In this case with the son as the sole beneficiary and the children as contingents, the son must complete the disclaimer in 9 months. The two children are then treated as the primary beneficiaries. If one of them proceeds to distribute their entire interest by 9/30, then only one child remains as beneficiary and that child’s age determines his RMDs. This example illustrates both the effect of the disclaimer to waive the client’s interest and the 9/30 date which eliminates the child who took the lump sum distribution from having any affect on the RMD for the remaining child. Disclaimer determines who does NOT receive death benefits, 9/30 date determines the remaining beneficiaries for RMD purposes of the remaining beneficiaries.
  • Note that the year of death RMD of the client must be satisfied if the client did not complete it. If the son takes this RMD, he can still disclaim per IRS ruling. Normally, accepting any part of the benefits eliminates the disclaimer option.


Submitted by David Mertz on Mon, 2015-01-12 18:50

If the son and a charity are both primary beneficiaries and the son disclaims, the charity would generally end up with the entire IRA with none passing to the contingent beneficiaries.



Submitted by Bruce Steiner on Mon, 2015-01-12 23:43

The IRA owner could make whatever provision he/she wanted, but having the son’s share to to the charity rather than to or in trust for the son’s children would be unusual.  In that case, the son would only disclaim if he wanted the money to go to the charity.



Submitted by David Mertz on Tue, 2015-01-13 00:58

Ah, true.  Most beneficiary statements allow a designation for a beneficiary that if the beneficiary predeceases the IRA owner (which would be considered to have happened if the beneficiary disclaims), the beneficiary’s descendants will inherit the share.  However, if such designation was made, I’m not sure why the owner would list the same descendants as contingent beneficiaries, if that’s what was done (or maybe this was a hypothetical situation different from the original question).



Submitted by [email protected] on Tue, 2015-01-13 14:12

would this also be the case if the son’s designation was “per stirpes”?



Submitted by Alan - IRA critic on Tue, 2015-01-13 16:41

  • No. Per stirpes would direct the son’s share to his contingent beneficiaries if he disclaimed OR if he actually did pre decease the IRA owner.
  • I think the charitable beneficiary was just a hypothetical addition, added as a “what if” scenario by the OP.

 



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