Post Mortem – IRA Beneficiary Change

Submitted by Russ Weiss on Thu, 2016-09-15 20:58

I have a client is who’s major heir of her stepfathers estate (1,000,000 +). She is the sole beneficiary on his IRA (worth about $140,000). Within the Step Father’s Will he left $100,000 to charity. The only other heir is the brother of the deceased at $50,000. Can the step daughter (who is also Executrix), disclaim her portion of the IRA as sole beneficiary and have the IRA payout to the Charities since they are listed within the Will? Its a Pennsylvania domicile..

I think the only way this could of happened is if the Charities were also named within the IRA as beneficiaries, then she could have disclaimed her portion to the Charities.

Any thoughts or help on the above is much appreciated.



Submitted by Alan - IRA critic on Thu, 2016-09-15 21:28

To be a qualified disclaimer, the disclaimant (client) cannot receive any of the disclaimed assets as a result of the disclaimer. Since client is a beneficiary of his estate, she would end up with much of the 140k anyway, so she cannot disclaim. Is she trying to reduce estate taxes?



Submitted by David Mertz on Thu, 2016-09-15 23:18

To avoid the disclaimer not being a qualified disclaimer due to her status as beneficiary of the estate, I believe that the disclaimer can be written so as to also disclaim any interest in the IRA that she would otherwise have through the estate.  So I believe it’s possible to directly disclaim a portion of the IRA equal to $100,000 as of the date of death (or the alternate valuation date, if elected), also disclaim this same portion that would otherwise be inherited from the estate, and as executrix assign the doubly disclaimed IRA to the charity.  The charity could then take a distribution from the IRA without any tax liability.  But Bruce Steiner would be a better one to comment on this.



Submitted by Bruce Steiner on Fri, 2016-09-16 21:53

  • DMx:  thanks for the kind words.  
  • The IRS said in CCM 200644020 that it doesn’t work:  https://www.irs.gov/pub/irs-wd/0644020.pdf?_ga=1.214588053.32371717.1389218299_ga=1.214588053.32371717.1389218299.  Similarly, see CCM 200848020:  https://www.irs.gov/pub/irs-wd/0848020.pdf?_ga=1.205273362.32371717.1389218299. 
  • The solution would have been to name the charity as the beneficiary of the IRA.


Submitted by David Mertz on Fri, 2016-09-16 23:23

So it appears that the issue is not that the IRA cannot be disclaimed and assigned to the trust by the estate, it’s that doing so results in the estate realizing the income and being subject to the tax on that income, which would be a worse result, taxwise.  Is that correct?



Submitted by Ben Meyer on Sun, 2016-09-18 12:36

  • The lesson here seems to be that there are two separate issues.  The first issue, the disclaimer, is resolved under state law.  The second issue is the deductibility of a charitable gift under the Tax Code.  The IRS seems to applying extremely strict criteria as to whether a contribution was made pursuant to the governing instrument.  Thus, even if the trust is reformed under state law, the IRS may not recognize that the reformation can make the charitable gifts deductible.  In both of the cited IRS Chief Cousel Memorandums, the lesson is that the trust must be in strict compliance, both procedurally and by the terms of the trust, in order to avoid taxation of a charitable gift.
  • This leaves a question of what guidelines or principles can be used to ensure that a charitable gift from an IRA will not be taxed when made through a trust.


Submitted by Bruce Steiner on Mon, 2016-09-19 02:20

  • There’s no reason to look for a complicated approach that might work when there’s a simple approach that works without any doubt.  Just name the charity (on the IRA beneficiary designation form) as a beneficiary or contingent beneficiary of some or all of the IRA.
  • There was no trust involved in the original post.  That would add another level of complexity in this situation.


Submitted by Ben Meyer on Tue, 2016-09-20 01:24

The simple approach is definitely the best, as Bruce has repeatedly posted.  However, there are many testators/trustors who unfortunately view a living trust as an elite status symbol, regardless of actual need, and there are many estate planning attorneys who cater to that inclination.



Submitted by Bruce Steiner on Tue, 2016-09-20 02:50

  • There was no mention of a living trust in the original post.  The decedent lived in Pennsylvania where probating a Will is simple and revocable trusts are not commonly used.
  • A living trust is hardly an elite status symbol.  While revocable trusts may be appropriate in some cases, and in some states, they’re overhyped and oversold, and in most cases, in most states, are unnecessary, and are often a distraction.


Submitted by Russ Weiss on Mon, 2016-09-26 17:53

Thank you all for the comments.  Seems like a number of different opinions on whether its possible to do this post mortem.  The deceased wanted money to go to the charities, so naming the charities on the heirs’ inherited IRA as a beneficiary does not help.  In hindsigt, it would have been best for the deceased to have the Charities as a beneficiary on the IRA.  Since the deceased did not, its the reason I asked about doing it post mortem given the will allows for disclaimer.There is no trust in this estate.  The goal is to use pretax dollars (within the IRA) as the gift to charity.  This leaves the non IRA assets available to the main heir which have less tax consequence to her. 



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