Small/rural credit union “has never heard of” disclaiming inherited IRA

Submitted by Dood El Farbe on Tue, 2019-05-28 21:14

Hello all –

My father passed recently leaving a smallish IRA to my 2 sisters and me as beneficiaries (that is, no contingents, rather all 3 of us as primaries).

I don’t want this money and told my sisters I’d disclaim it, and if I did, then with me out of the way the bank would treat them as the 2 sole primaries and split between them. I’ve explained to them about setting up an inherited IRA at their own institutions and getting a trustee-to-trustee transfer and taking their RMDs starting next year, which is how they’d prefer to work it since neither of them has much in the way of personal retirement accounts.

I asked my older sister who has been dealing with the credit union while Dad was ill (she had financial POA until he died) to see if they have a specific form or have particular requirements, or if they just want me to do up a disclaimer ab initio and get it notarized and mail it to them (I’m 900 miles away).

Two separate people at the credit union told her they’d never heard of disclaimer, and there’s no way for me to disclaim this inheritance.

Rather than jamming IRC §2518 at them, does anyone have suggestions for explaining things to the credit union?

Has anyone run into this before?

Many thanks for reading.



Submitted by Alan - IRA critic on Tue, 2019-05-28 23:48

  • I assume that the beneficiary designations on the IRA have been verified. It is normal for IRA agreements not to specifically address disclaimers, but a copy of the agreement should always be carefully examined to check that and also to make sure that there is no “per stirpes” or other issue with the account. Beyond that, if you have an attorney who would forward the disclaimer for a reasonable fee on your behalf, that should result in faster response. Remember to start early due to the 9 month time limit for filing, even though that time limit only applies to filing the disclaimer, not for the CU to process it. I expect that your sister has simply been dealing with inexperienced front line staff, and that like other small institutions they have resources to tap for situations beyond their level of competence.
  • If father was subject to RMDs and did not complete the year of death RMD, the beneficiaries are jointly responsible for complying. But due to the disclaimer and technical requirements for RMD distributions, it is safer not to deal with the year of death RMD until the disclaimer is accepted and acknowledged. You should avoid anything with the potential to disqualify the disclaimer even though the year of death RMD itself does not disqualify it. However, there are risks determining the amount of earnings on the late RMD and also risks in determining the actual amount of the RMD shortfall, so deal with any year of death RMD issues after the disclaimer is accepted. You might google RR 2005-36 relative to disclaimers and RMDs.

Submitted by Dood El Farbe on Wed, 2019-05-29 01:04

Hi Alan, thanks much for responding.  Dad rolled his small 401(k) to this IRA and at the time designated we three kids as beneficiaries, and so far as we know never changed this.   I have a copy of that document and it was a simple beneficiary designation, exactly as you would see with life insurance, so my kids do not have any claim once I effectively disclaim.  Thanks also for the watch-out on Dad’s RMDs, but this is no issue for us because he took them upfront each year in toto as “beer money”, as he called it.  I’m trying to avoid attorney involvement as the amounts involved are fairly small (~ $35K) and we’re kind of expensive (I’m a patent lawyer).  I just want my sisters to split this as 17.5 each as cleanly as possible and get their individual IRAs set up and bow out.  

Submitted by Bruce Steiner on Wed, 2019-05-29 20:23

Since you’re lawyer, prepare the disclaimer in accordance with Section 2518 and applicable state law, and file and serve it in accordance with applicable state law.  Then try to get to someone higher up at the bank.

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