Disclaiming IRA 9 month rule exceptions

My client’s brother passed away… he had a good sized IRA at a brokerage… they “lost” the beneficiary designation (it was held electronically… they purchased another company.. not compatible systems… etc).. My client was sure that he was 100% beneficiary with his sister contingent… the brother had no wife or children.

My client was going to disclaim 50% of the IRA which would then pass to his sister. In following up with the brokerage once probate was winding down they actually FOUND the beneficiary designation. HOWEVER, the 9 month window from date of death had ended the day before they found it. If they hadn’t of lost it my client would have disclaimed 50% well within the 9 month window. Now it appears we are stuck.

The brokerage company is willing to accept the disclaimer letter but I don’t believe the IRS is bound to that.

Anyone experience something similiar? What was the result?

Thanks,

Andy



I have heard some stories of lost beneficiary designations for this or related reasons, and this underscores the need to get some written evidence of what shows on the custodian’s books. I am not aware of the resolutions.

In this case, it appears that the brokerage should be paying the costs of the PLR requesting the IRS to approve a late disclaimer. The client will probably have to pay up front for the disclaimer, but if for some reason the PLR is not successful, the cost of the disclaimer can be added to whatever other damages the client chooses to demand from the broker. At this point, detailed evidence of the chain of events should be carefully documented.

There are of course several tangential issues here such as how to handle the RMD, successor beneficiaries, creation of separate accounts, and how much each sibling needs in addition to the RMD that would complicate the tax situation. In the meantime he might have to take the entire RMD and determine if sister’s share net of taxes is under the $12,000 gift exclusion.



The IRS has no authority to extend the 9-month deadline for a qualified disclaimer, since the deadline is statutory. Section 2518(b)(2).

Depending upon the amount of the annual required distributions, perhaps he could give one-half of his after-tax distributions each year to his sister and her husband, children, grandchildren and their spouses without it being a taxable gift. If he is married and his wife consents to gift-splitting, he could give each donee $24,000 per year without it being a taxable gift, and in addition he could pay their tuition and medical expenses without that being a taxable gift.

Bruce Steiner, attorney
NYC
also admitted in NJ and FL



Bruce’s suggestion makes a lot of sense. In addition, he could elect tax withholding, so that the net payment he gets could be split, and he would have the taxe credit next April.



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