Disclaiming an IRA Inheritance and Ensuring IRA Bene Form is complete Now

Submitted by Jim Moran on Fri, 2022-09-16 11:16

Client owns his/her IRA , has children, and wishes to provide as much flexibility as possible for her Children and Grandchildren upon her Death (with least downstream Taxes to heirs) Client wishes to ensure her children have rights to disclaim an inherited IRA and pass it on to their children if desired at time of her death. Client fees this may help significantly on Grandchildren’s College expenses as well.

Questions:

1) Broker’s IRA Beneficiary form – does client simply name her Children as Primary beneficiary NOW and also list the Grandchildren as contingent(s) NOW. Will this ensure that the Children have ‘full Legal’ discretion to disclaim the inheritance or does other action need to be taken. If the contingent’s are not listed, will parents still have the right to disclaim to the children?

2) If the Grandchildren are MINORS upon the owners death and they receive the disclaimed inheritance, they will not have to take any distributions form the Inherited IRA until they reach the age of 18 when they will need to begin 10 year distributions (and pay taxes) per the SECURE ACT. Is this all Correct ?

3) Guardianship – If Grandchildren are minors, how is the Inherited IRA named by the Brokerage house ? Does the Broker change the titling once the grandchild turns age 18 ? Does any Legal work need to be done by the client now to ensure that this process goes smoothly after his/her death ?

Thank You.



Submitted by Alan - IRA critic on Fri, 2022-09-16 16:01

  1. The children should be listed as primary and the grandchildren as contingent beneficiaries, and the IRA agreement should be checked to make sure there is no conflicting beneficiary provisions. To avoid possible issues, a separate IRA for each child might be considered. After death, all the requirements for a qualified disclaimer must be met. If contingents are not named, a disclaimer could face a number of complications as the owner’s estate might inherit that share. 
  2. Not correct. Only the children of the IRA can be EDBs as minors. Grandchildren would not qualify and would be subject to the 10 year rule unless disabled or chronically ill.
  3. Minor grandchildren would have to inherit as an UTMA beneficiary with a responsible UTMA custodian until they reach majority. Upon the state’s age of majority, the grandchildren will have full control of their inherited IRAs and can have it retitled to eliminate the UTMA.
  4. Passing an IRA to grandchildren is much less beneficial after the Secure Act due to the 10 year rule applying to most beneficiaries, and a disclaimer will not change that unless the grandchild is disabled or chronically ill.

Submitted by Jay Wiedwald on Sat, 2022-09-17 05:53

IRA distributions are unearned income and any amount over $2300 will trigger a Kiddie tax situation for those who are subject to those rules. This would be virtually anyone under age 19 or a full-time student under age 24. Such income would be taxed at the parent’s marginal tax rate.

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