Naming beneficiaries for Stretch TIRA

My wife and I are both in our 80s and have two adult daughters. We both have our individual TIRAs. What is the best way to name our children as beneficiaries so that the inherited IRA is stretched out over their life expectancy at the lower RMD. I would appreciate your opinion on either of the two following options that come to mind.

(a) My wife and I will each divide our respective IRA into two IRAs naming each daughter as a primary beneficiary. This way they will each inherit an IRA at either parents death and take the RMD out at the reduced rate based on their own life expectancy after the inherited IRA is re-titled jointly in her and the deceased parent’s name.

(b) My wife and I designate each other as the primary beneficiary in our present IRAs with our daughters as equal secondary beneficiaries. If one of us dies then the surviving spouse instead of doing the spousal roll over with the inherited IRA will instead disclaim the benefit and let the inheritance go directly to each daughter who will then title her 50% share as an inherited IRA jointly in her and the deceased parent’s name.

Option (b) will result in less paper work for me now, but will it cause any future problem – legal or administrative – for the surviving spouse or the beneficiaries? I am told that this may be tricky and requires some other IRS rules and deadlines.

Which of the two options would you recommend?

Thanks for your help



Any option will have it’s advantages and disadvantages compared to other options. The best choice depends on additional details and judgements.

  • Option 1 has a sub option and that is to not divide the IRA and you will not have to be concerned with keeping them of equal value. You could name them both as 50% beneficiaries and all they have to do to use their own life expectancies for beneficiary RMDs is to create separate accounts for each no later than the end of the year following the year of your death. Creating two accounts now is only recommended if they cannot get along or coordinate in creating the separate accounts. Of course, the main disadvantage here is that if the surviving spouse needs any funds for unexpected expenses such as LT care, they will not have access to the money unless the children gift money from the inherited IRAs but there is only a 14k annual gift exclusion for each child to gift without filing a gift tax return. While the RMDs will be lower for the children, their tax rates may not be.
  • Option b may require a lawyer to draft a valid disclaimer, which has a deadline of 9 months following the date of death. A partial disclaimer is also an option. Any portion that is not disclaimed should be rolled over and combined with the surviving spouse’s own IRA. The legal bill and deadline is the only disadvantage of this approach. Either way, if one of you passes without completing your RMD for that year, the ultimate beneficiary must complete the year of death RMD. Taking the year of death RMD (only) will not invalidate a disclaimer but any other distributions taken by the surviving spouse will.
  • Note that the mental condition of each of you is important since you do not know which will pass first. The children (one or both) should have POAs for each spouse at the first sign of any issues dealing with financial matters.
  • Note that if either child has spending or legal problems or marriage problems, you may want to consider a trust as the beneficiary for that child since the trust will protect the inherited IRA from creditors including spouses in a divorce action. You would not have to draft the trust now, as it could be a testamentary trust, but must be listed as the beneficiary on the IRA agreement. No trust will protect the funds from IRS liens. Note that one disadvantage of trusts that retain IRA RMDs or other distributions is that the tax rate is much higher than if the distributions are passed through to the trust beneficiary. A 1041 must be filed every year for the trust, Of course, if you decide on a trust you must decide who would be the best trustee for it.
  • You have to draft the trusts in your Will now.  If you do it after your death, we won’t know about it.
  • An advantage of naming the spouse as primary beneficiary is that it gives the spouse the opportunity to do Roth conversions.

Bruce. the complete trust must be drafted and included in the will, or is there a way to just specify the general trust provisions to be finalized after trustor’s death?  If the complete trust must be included, where is the cost savings for the trustor?

Our clients almost always provide for their children in separate trusts for their benefit rather than outright, to keep their inheritances out of their estates, and to protect their inheritances from their creditors and spouses.  The same reasons for doing so for other assets apply to IRA benefits.  The trusts that receive the IRA benefits are similar to the trusts that receive the other assets, except for the special requirements for trusts that receive IRA benefits (namely that nothing can ever go to anyone older than the person whose life expectancy you want to use to measure the stretch, or to anyone other than an individual (no charities) or another trust subject to the same restrictions.  There’s very little additional cost to including the provisions for the trusts that receive the IRA benefits.  While there are some ways to fix irrevocable trusts, the IRA owner’s Will still has to set forth the terms of the trusts.

If I name my two daughters as beneficiaries of the IRA at 50% each you say that they will be able to stretch out their portion of the IRA at their lower age. I have also read somewhere that the stretch RMD will be at the age of the older sibling. Is this correct? How can it be retitled so that each daughter can be eligible to take the stretch RMD at her own life expectancy and not at the life expectancy of the older sibling.If that can be accomplished then it will be the simplest and most straightforward way to pass on the TIRA to the children and stretch out the RMDThanks for your opinion

The separate account rules apply here. If each beneficiary creates a separate inherited IRA account no later than 12/31 of the year following the year of your death, they can each use their own individual life expectancy for their RMDs. If this deadline is missed, then both have to use the life expectancy of the oldest beneficiary.

Alan. That settles it for what I’ll do. Thanks for a clear and concise determination.

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