Beneficiary doesn’t want IRA but doesn’t disclaim

Submitted by Stephen Cuskley on Mon, 2017-01-02 20:25

My brother died on October 2, 2016 and left an IRA to me and my sister (50/50). My brother was 79. His IRA was worth about $500,000.

I had my half transferred into an inherited IRA and took half of my brother’s year-of-death RMD, but my sister has not taken anything because any distribution she receives would disqualify her from the government benefits that she now receives. But that’s not the most important reason she has not taken anything from my brother’s IRA. The most important reason is that a lawyer told her that if she no longer qualifies for government benefits that the special needs trust of which she’s the sole beneficiary would be prevented from making any distributions to her.

I know that she has 9 months from Oct. 2 to disclaim the IRA, but at this stage I’m not sure she is going to disclaim it.

If she doesn’t disclaim it within 9 months, and doesn’t set up an inherited IRA by Dec. 31,2017, would she then somehow then “own” it, would my brother still “own” it, or would it be in some other legal status?

The bottom line is, if she never takes any action with regard to the IRA, at some point would she be required to take RMDs, and when would that be?

Thanks,
Steve



Submitted by Alan - IRA critic on Mon, 2017-01-02 22:10

If she takes no action, the IRA custodian will not recognize her as beneficiary of the account, and after limited contact effort could well escheat the account to the state. She is considered to have inherited the IRA in any event, but until she retitles it she has no authority to make requests from the custodian. Disclaimer is one solution, but at this point I would recommend that she contact an attorney that specilizes in SNTs in her state. She might be able to establish a self settled SNT per PLR 2006 20025 and not lose the govt benefits. I do not know how the current SNT relates to this, but that is one of the issues that the attorney can address:

 11. What can be done when an IRA or qualified plan names a public benefits recipient as beneficiary? One helpful Private Letter Ruling suggests an outcome, though it is not without its difficulties: create a self-settled special needs trust and transfer the IRA or qualified plan to the trust. PLR 2006 20025 involved a deceased IRA owner who had named his three sons as equal beneficiaries. Two sons had collected their shares (into, one hopes, separate rollover IRAs under the “separate share” rules). The third son was an SSI recipient who would risk both benefits loss and accelerated income taxes if he were to simply collect the IRA, liquidate it and place the proceeds into a selfsettled special needs trust. The decedent’s ex-wife, mother of the son with disabilities, created a 42 USC §1396p(d)(4)(A) trust and sought to transfer the IRA intact to that trust. She requested a private letter ruling that such a transfer would not be deemed to be a liquidation of the IRA, and the IRS obliged.



Submitted by Stephen Cuskley on Mon, 2017-01-02 23:04

Thanks a …quarter of a million! The depth of your knowledge is astounding!I’ll check this out. Steve 



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