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
Permalink Submitted by Alan - IRA critic on Wed, 2016-05-25 00:04
Any option will have it’s advantages and disadvantages compared to other options. The best choice depends on additional details and judgements.
Permalink Submitted by Bruce Steiner on Wed, 2016-05-25 03:02
Permalink Submitted by Alan - IRA critic on Wed, 2016-05-25 16:03
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?
Permalink Submitted by Bruce Steiner on Wed, 2016-05-25 22:29
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.
Permalink Submitted by n2b on Mon, 2016-06-13 20:26
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
Permalink Submitted by Alan - IRA critic on Mon, 2016-06-13 20:33
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.
Permalink Submitted by n2b on Thu, 2016-06-16 05:39
Alan. That settles it for what I’ll do. Thanks for a clear and concise determination.