Multiple RMD’s

Submitted by mike feltch on Fri, 2016-06-10 20:10

I am a sole beneficiary planning on disclaiming my 89 year old fathers IRA, establish an estate IRA, and then having the financial institution subsequently create multiple IRA’s for myself and 3 brothers and sister. If the total required RMD for this year is $4,000 – will each sibling taking $800 this year satisfy the RMD requirement? I am attempting to minimize 2016 estate taxes. Thanks for the help.



Submitted by Alan - IRA critic on Fri, 2016-06-10 20:34

  • If Dad passed this year, the year of death RMD can be completed in any combination by the beneficiaries. Perhaps one beneficiary wants to distribute 4,000 and that would cover the entire year of death RMD. By “estate taxes” you apparently are referring to income taxes on the estate. But if the estate takes the entire RMD, the income taxes on that RMD can be passed through to the beneficiaries on a K1 and the taxes would be paid at each beneficiary’s individual rate on their 1040.
  • Be careful with the disclaimer process. If you personally are a beneficiary under the will, you cannot disclaim to the estate and then still receive a share of what you disclaimed. Who are the will beneficiaries?
  • If the IRA is small enough, you might instead consider NOT disclaiming, and then annually gifting a portion of your annual RMD or other distribution to each sibling. You would gift a tax adjusted amount since you will be paying taxes on the entire distribution.

Submitted by mike feltch on Fri, 2016-06-10 21:14

Thanks for the advice Alan. I will be disclaiming as sole beneficiary on the individual IRA.  Then transferring the IRA to the estate.  Then establishing IRA’s for all 5 siblings (including me) per the will which states equal shares to all 5 children (adults). I am the executor.  So I am not disclaiming to the estate but the individual IRA.  I thought I read where this is an allowed process of transfer.  Objective is to get the $$ to my siblings and everybody pays taxes at their own rate.

Submitted by David Mertz on Fri, 2016-06-10 23:29

As Alan said, you can’t receive any part of the disclaimed property through the estate and have the disclaimer be a qualfied disclaimer.  Instead I believe that you would need disclaim 4/5 of the IRA as IRA beneficiary, keep 1/5 as IRA beneficiary, disclaim any interest in the 4/5 portion as estate beneficiary and allow the other estate beneficiaries to receive their portions through the estate.

Submitted by Alan - IRA critic on Fri, 2016-06-10 23:47

Good idea, but the last sentence in the following is the problem. Because you are a beneficiary of the estate, when you disclaim the IRA, the IRA will pass to the estate since there is no contingent beneficiary on the IRA, and you will get a piece of it back as an estate beneficiary. That violates the final sentence of the definition of a qualified disclaimer in Sec 2518 of the tax code:

b) Qualified disclaimer definedFor purposes of subsection (a), the term “qualified disclaimer” means an irrevocable and unqualified refusal by a person to accept an interest in property but only if—(1)such refusal is in writing,(2) such writing is received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates not later than the date which is 9 months after the later of—(A)the day on which the transfer creating the interest in such person is made, or(B)the day on which such person attains age 21,(3)such person has not accepted the interest or any of its benefits, and

(4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either—(A)to the spouse of the decedent, or(B)to a person other than the person making the disclaimer. 

You could probably disclaim your share of the IRA under the will, and then you would not receive any of the IRA back as the result of the IRA disclaimer, and disclaim 80% of the IRA to get your own share directly. You should run this by an estate attorney. In addition, any portion of the IRA that goes to the estate will reduce the IRA distribution period from beneficiary’s own life expectancy to the remaining life expectancy of your father, which is between 5 and 6 years depending on his exact age as of the end of the year he passed. If you did not disclaim, the stretch period would be based on your own life expectancy, obviously much longer.

 

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