Traditional IRA Disclaimer Received Through an Estate

Submitted by TaxLadyEA2010 on Mon, 2018-08-06 18:37

I would appreciate comments about the following situation.

Mother passed away and did not name beneficiaries on her IRA account. The default was they went into an Estate Inherited IRA. Sub account inherited IRA’s were created for the beneficiaries named in the will. They were titled properly.

One of the heirs is a minor child. RMD factor for 2018 is only 8.1 because decedent was age 82 at death in 2017.

Minor child RMD’s will be subject to extremely high tax rates due to new tax law taxing children at same rates for trusts and estates.

Question: can the guardian write a disclaimer for the IRA assets? No distributions other than the RMD have been taken.

If a disclaimer is allowed, would the assets go into the remaining heirs’ Inherited IRA’s that are all adults?

The estate is large enough to compensate the minor child with cash and/or property.

Thank you.



Submitted by Alan - IRA critic on Mon, 2018-08-06 22:55

Sounds like the age 21 disclaimer deadline for the minor is being applied. Was the RMD taken the remaining year of death RMD of the decedent? If the inherited IRA for the minor has been funded per request of the executor, that might be a problem in some states. Check with local estate attorney on that issue.

Submitted by TaxLadyEA2010 on Wed, 2018-08-08 13:45

Yes, the RMD was taken proportionately by each heir according to the will.  But here is a Rev. Rul.  2005-36 that states taking RMD does not invalidate the disclaimer.  it seems to say the the RMD taken FOR the year of death not IN year of death so in this case the RMD’s were taken for 2017 in 2018.  I interpret this that the disclaimer could still be submitted.I calculated the taxes for the minor heir and they are so high.  It is unfortunate but really the decedent should have named beneficiaries in the first place.In most situations, the disclaimers are written by designated beneficiaries.  This situation is a serious IRA mistake.  Not much can be done.  The Department of Labor did a study in 2012 that recognized the IRA beneficiary situation is a big problem.  There were recommendations that the default order of preference for IRA’s should be Spouse, children, parents, siblings and THE LAST RESORT, the estate.  The most common default now for accounts with no designated beneficiaries is the estate.

Submitted by Alan - IRA critic on Wed, 2018-08-08 16:05

  • No question about 2005-36. The reason I asked about the RMD is to make sure that the minor did not take out any beneficiary RMD and that all distributions were limited to the decedent’s RMD.  Because the decedent’s RMD can be aggregated between all beneficiaries and need not be pro rata, coordination must be spot on to make sure that the year of death RMD was not completed before a distribution from the minor’s account. Pro rata is the safe way to do this when a disclaimer is being contemplated.  Sounds like the executor took no distributions to the estate and assigned the IRA to the beneficiaries before any distributions were taken.
  • Custodians appear to desire the flexibility of determining the default beneficiary terms for their IRA accounts rather than being subject to uniform regs. Due to poor planning, sometimes the agreement default provisions bail out the owner and sometimes they result in a very bad result. Disclaimers with an estate beneficiary are dicey because the disclaimer would normally be filed with the executor and the executor would not assign the inherited IRA portion to a separate inherited account for the minor.  That could create problems since the IRA custodian is now involved and possibly state law.

Submitted by TaxLadyEA2010 on Tue, 2018-08-14 13:43

As much as I would like to fix this problem, I think it is a lost cause.  At least there is some stretch and it is what it is.  The current custodian will not answer whether they will accept a disclaimer so time to move on.  The original custodian refused to do the subaccounts so at least I found a firm that would do this.  It could have been worse.  I just read another blog post here where the IRA custodian botched the transfer by cashing out the IRA to the beneficiary and told him to take the check to the other firm.  Counting my blessings here.

Submitted by TaxLadyEA2010 on Thu, 2018-08-16 14:58

I have been racking my brain to come up with something that can salvage this situation.  I got word from the IRA custodian that they will accept a disclaimer for the minor child.  The missed RMD taken was spot on so no other benefits have been taken, so a valid disclaimer can still be done.The will was written that “if my executor determines that a beneficiary’s share can be retained for their benefit in a Uniform Transfer to Minor’s Act TRUST, the the executor shall distribute the beneficiary’s share to the executor as custodian under the act to hold said share until the maximum age allowed by law.So my thought process would be to go ahead and do the disclaimer.  The share would revert back to the Estate Inherited IRA.  Then I would instruct the custodian to create a subaccount and set up a TRUST and name the TRUST as the beneficiary of the original IRA holder.  The RMD could be split with the trust paying on amount up to $12,500 and the beneficiary paying on the remainder.  In essence the tax liablity would be split between trust and beneficiary to lower overall tax liability.  It wouldn’t lower it much but probably about $2000 per year which adds up to about a $16,000 savings.Thoughts?

Submitted by Alan - IRA critic on Fri, 2018-08-17 19:38

Not sure a disclaimer is even required. Will the IRA custodian allow the guardian to change the beneficiary on the already created inherited IRA of the minor to an UTMA account FBO the minor?

Submitted by TaxLadyEA2010 on Tue, 2018-08-21 15:00

Thanks.  I will ask if re-titling the account is a possibility.  Anything helps.

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