declining an IRA distribution

Submitted by kathleen korycki on Thu, 2017-04-13 19:55

My mother passed away in August 2016. She left an IRA with her 4 children as beneficiaries. One of the 4 would like to decline accepting it (because he is on Social Security Disability and we understand it would interfere with his benefits). The lawyer handling the probate process and the advisor at the firm that has the IRA do not have knowledge about this. Another lawyer I consulted plans to set up a special needs trust for this sibling and tell Social Security about it . He stated that he’d be allowed to have the IRA money if it is put in trust for him.
In the meantime we may be incurring the 50% penalty for not taking the RMD. None of the 4 children have taken their distribution because of this issue.
I need some guidance as soon as possible. Thank you in advance.



Submitted by Alan - IRA critic on Thu, 2017-04-13 21:24

  • I think you may be referring to Medicaid benefits, not SSD. Declination of an inherited IRA interest is done by filing a qualified disclaimer with the IRA custodian no later than 9 months from the DOD, so time is running out on that option. The IRA beneficiary clause needs to be checked to determine where this share goes if the beneficiary disclaims, but if this beneficiary was just listed individually their share would likely go to the remaining 3 in equal parts. If instead of disclaiming, a self settled SNT is established, the beneficiary can have their 25% share of the IRA transferred to an inherited IRA with the SNT as beneficiary. An SNT can be drafted as a qualified trust for look through purposes, meaning that the RMDs which must start no later than 12/31/2017 can be based on the single life expectancy of the SNT beneficiary. Separate inherited IRAs for each beneficiary need to be established no later than the end of 2017 in order for each beneficiary to use their own life expectancy for RMDs. If the deadline is missed then the RMDs for each person must be calculated using the age of the oldest beneficiary. The SNT vs disclaimer decision would take the amount of the 25% into consideration. I don’t know that the SNT is viable if that share is under 100k, but the higher the amount the more likely the SNT would be preferable. Note that a self settled SNT must leave any remaining balance after the death of the SNT beneficiary to the state. Had the SNT been established and named on the IRA agreement before mother’s passing, it would not be a self settled SNT and the state would not have receive the remaining balance.
  • If your mother passed after her RMDs had begun and did not complete her 2016 RMD, the beneficiaries are jointly responsible for completing that RMD. Since that was not done, a Form 5329 penalty waiver request would have to be filed for 2016 requesting the waiver for reasonable cause. The IRS will likely approve this request. When this RMD is eventually distributed it will be taxable to the beneficiary(s) who receive it.
  • If there will be no disclaimer then the other 3 beneficiaries will not be receiving the disclaimed share, and there is no reason to wait in setting up their 3 separate inherited IRA accounts. If there is a 2016 RMD remaining to be distributed, you can joint decide how to split this up. It does not have be taken in equal shares because it is not a beneficiary RMD, it is your mother’s RMD. This distribution can be done after the separate accounts are established, but the 5329 cannot be filed until that RMD is completed.

Submitted by Kenneth Patrick on Fri, 2017-11-10 04:27

If you want, you can take another opinion after from a lawyer.  

Submitted by Bruce Steiner on Fri, 2017-11-17 00:21

  • He can disclaim his share if he wants.
  • Several private letter rulings have permitted a beneficiary to transfer an inherited IRA to a trust for his own benefit.  While the rulings don’t discuss this issue, presumably they were first-party Medicaid payback trusts.
  • Why would the executor hire a lawyer who wasn’t familiar with disclaimers?  Disclaimers should be routine for any trusts and estates lawyer.
  • Bruce Steiner, attorney

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