IRA DISCLAIMER
When husband dies spouse is beneficiary for IRA and children and grandchildren are successor beneficiaries. Can spouse and children disclaim and IRA divided by grandchildren? How to disclaim and what will be tax and distribution rules.
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-17 14:45
This is probably impractical given the number of disclaimers and possibly a very large number of contingent beneficiaries. And the GC no longer get a long stretch because the 10 year rule would apply. The IRA would have to be very larger and spouse in a very high tax bracket to make this worth the cost and effort. Legal fees could be quite high. If IRA is of modest size, spouse might consider accepting the IRA and then making several annual gifts, particularly if under the annual gift exclusion for the year.
Permalink Submitted by Bruce Steiner on Fri, 2021-12-17 15:01
We do disclaimers in a substantial portion of our estates. There are various reasons for disclaiming. See my article on this in the November/December 1990 issue of Probate & Property (an American Bar Associatio publication): https://www.kkwc.com/wp-content/uploads/2020/05/Disclaimer_article_Probate__Property_Nov_Dec_1990.pdf .
The lawyer will prepare the appropriate documents so that the disclaimer will comply with both Federal tax law and the applicable state law.
Upon a disclaimer, unless the governing instrument (usually the Will though in this case the IRA beneficiary designation) provides otherwise, the disclaimed property (in this case, the IRA) will go as if the person disclaiming predeceased the IRA owner. You would look to the beneficiary designation to see who’s next in line. For example, if the beneficiary designation says to my spouse if she survives, otherwise to my issue per stirpes, and my spouse disclaims, it then goes to my children (or the issue of a deceased child). If a child then disclaims, his/her share would then go to his/her issue, or if none then to my other issue.
There are other possibilities. For example, the spouse could be the primary beneficiary and a trust of which the spouse is a beneficiary could be the first contingent beneficiary.
Assuming the disclaimer is a qualified disclaimer (if it meets the requirements of Federal tax law), it’s not a gift, and it’s treated for tax purposes as if the recipient had been the primary beneficiary.
Bruce Steiner