Roth

Submitted by Theodore Osinski on Wed, 2016-05-25 19:41

I converted my TIRA to a Roth in 2010. Present age 82
Asset value exceeds the 5.45 million estate tax threshold.
Fidelity requires beneficiary names and amounts be in percentages.
As i do not expect to ever need the assets I requested Fidelity amending beneficiary form distributing to my three children the prevailing estate tax limit in equal shares, and any remaining assets to my spouse.
Fidelity advised that IRS “REQUIRES” Beneficiary assets must be in percentages.
They recommended establishing two separate Roth accounts one with estate tax limits with children as beneficiaries and remainder to spouse.
I questioned this method as total asset values constantly change..Response was that they will adjust Roth accounts bi monthly accounting for asset value changes to best optimize my desires.
Is there is a better way.
Not sure that IRS requires named beneficiaries to be in percentages?
As it stands now my spouse is primary beneficiary, children as contingents, with instructions for spouse to decline estate tax threshold amount, transferring to children, and excess over estate tax threshold to her Roth.
Your comments would be appreciated.



Submitted by Alan - IRA critic on Wed, 2016-05-25 21:24

Could you re title your post “Pecuniary amounts in Roth beneficiary clause”?  An estate attorney who posts here would then be very likely to notice your post and reply to it.  Also, you must have some other assets in your estate besides the Roth IRA? 

Submitted by Bruce Steiner on Wed, 2016-05-25 23:04

  • You can bequeath dollar amounts to some beneficiaries and the rest of your estate to another beneficiary or beneficiaries in your Will since your executors can collect your assets, distribute the cash bequests to the recipients, and distribute the rest to the residuary beneficiaries.
  • However, it’s not practical to do this with an IRA.  There’s no executor to make the distributions.  If the assets are invested in securities or mutual funds, there’s no executor to decide whether to make distributions in kind to the recipients of the dollar amounts, or whether to sell assets (and if so, which ones) to raise the cash to satisfy the dollar amounts. 

 

  • To make it more complicated, the children’s share isn’t necessarily $5.45 million.  The Federal estate tax exclusion amount is indexed for inflation.  Also, it’s reduced by taxable gifts during lifetime, bequests to persons other than the spouse, and administration expenses that are taken as income tax deductions rather than as estate tax deductions.
  • Given the amount involved, you may want to consider consulting with competent tax/estates counsel who can suggest how best to accomplish your objectives, and can draft appropriate provisions.

Submitted by Theodore Osinski on Wed, 2016-05-25 23:44

Retitled as requested should others wish to reply.Have other substantial assets equally dived with spouse.Also aware of indexing and portability.

Submitted by David Mertz on Thu, 2016-05-26 00:52

  • Fidelity’s Roth IRA Custodial Agreement requires the beneficiaries’ shares to be specified as percentages.  If percentages are not specified, the agreement requires that the account be divided into an equal share for each beneficiary.
  • Even if specifying a pecuniary amount was permitted by Fidelity, if the proportions to go to each beneficiary are not fixed at death, the separate account rule cannot be used.  (1.401(9)(a)-8 Q&A 3.) By specifying a pecuniary amount, the proportions that go to the various beneficiaries would vary after death until the account was split unless the pecuniary amount was to be adjusted for gains or losses between the date of death and the date the account was split.  Although I don’t know that Fidelity would allow it, it might be possible to establish proportions that become fixed at death by specifying the proportions in terms of account value at death.  Each of the three children would receive a proportion equal to $5.45M / (3 * date-of-death account value) and the spouse would receive a proportion equal to 1 – ($5.45M / date-of-death account value).  This would result in proportions that become fixed upon the death of the account owner.
  • Is there a reason that you wouldn’t want your spouse to accept your entire Roth IRA and have your spouse use the Deceased Spouse Unused Exclusion to make $10.9M exempt from federal estate tax at your spouse’s passing?  Do you live in a state that has a state estate tax?

Submitted by Theodore Osinski on Thu, 2016-05-26 13:22

No estate tax

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