Death of Beneficiary (Spouse) before doing anything with Inherited IRA

Submitted by Dana Advant on Tue, 2019-06-04 14:59

Husband dies January 2019. Has Beneficiary Designation Form for Traditional IRA naming wife as beneficiary. Does not name Successor Beneficiaries. Wife does not do anything with it. She did not own her own IRA. See did not roll over, didn’t created new beneficiary designation form. She dies shortly after in April 2019 before converting, rolling over, disclaiming, doing anything with it. Therefore, she has not named a beneficiary on any current beneficiary designation form for her “Inherited IRA” from deceased husband.
What do the beneficiaries of her estate do? Both spouses were in their late 90’s. She had what would be calculated as a 8 year life expectancy. (Husband was obviously already taking RMD’s). If the estate inherits the IRA from the deceased wife, can they use her stretch of 8 years for distributions. I guess the most important factor is if it is paid to the estate. Can beneficiaries each establish their own Inherited IRA’s and use her 8 years for distributions? Is it considered an Inherited IRA if wife never did anything with her husband’s IRA, and died before doing anything with it? Will she be assumed to be the new account holder automatically between Jan and April as the account owner or is she considered a beneficiary? Does it matter if she is account owner or beneficiary of husband’s IRA, since as an account owner she did not name her children as beneficiaries so Custodian will pay to Estate? If custodian pays full amount to only the Estate only , how do they take annual distributions? Will they leave the Estate account “open”?



Submitted by David Mertz on Tue, 2019-06-04 17:16

  • Because her husband died after his Required Beginning Date for RMDs and because she did not fail to take any beneficiary RMDs by the deadline for receiving such RMDs, she does not automatically become owner of the IRA.  Her husband remains the IRA owner/participant.  Unless the IRA agreement says otherwise, her estate will be the default successor beneficiary.
  • Since her husband died in January 2019, it’s likely that her husband’s RMD for 2019 was not completed.  The responsibility to complete that RMD then fell to her, and subsequently to her estate.  If the estate transfers the inherited IRA to the beneficiaries of her estate before taking this RMD, responsibility to complete this RMD will fall to the estate beneficiaries.
  • Beneficiary RMDs are to be determined using the Single Life Expectancy table, not the Uniform Lifetime table, so the stretch is based on a life expectancy of less than 4 years, not 8 years.  
  • If separate inherited IRAs for the estate beneficiaries are not established, the estate will have to remain open to obtain any stretch.  The RMD calculation is the same whether the IRA remains in the estate or separate inherited IRAs are established for estate beneficiaries.

Submitted by Dana Advant on Tue, 2019-06-04 18:29

Thank you Permalink. Can you clarify point 1. Would it have been better for her to become the owner of the IRA or her husband reamined IRA owner and she became beneficiary? DId you mean to say “because she did not fail to take any beneficiary RMDs…, she does not automatically become owner of the IRA”? I read elsewhere if she did not take the RMD for a year as the beneficiary she will be considered to be the owner of the husband’s IRA. 

Submitted by David Mertz on Tue, 2019-06-04 19:21

  • If she had assumed ownership but did not name any beneficiaries, RMDs from the IRA inherited from her would still be based on her life expectancy and the Single Life Expectancy table, so not much different than the present result.  If she had assumed ownership of the IRA and named her own beneficiaries, those beneficiaries would then have been able to take RMDs based on their own life expectancies (assuming that they are younger) and the Single Life Expectancy table.
  •  As beneficiary of her husband, the deadline for taking her first RMD as beneficiary would have been December 31, 2020, so she did not miss taking any beneficiary RMDs and did not automatically become owner.  Had she lived past December 31, 2020 without taking the full amount of beneficiary RMD for 2020, she would have defaulted to ownership.

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