can you choose beneficiaries if disinheriting inherited IRA assets?
A client’s sister was named as beneficiary of his IRA assets when he passed away young and fairly suddenly, and he had not updated beneficiaries to his wife & stepchild. However, the sister (who is maybe a US citizen still, but resides permanently outside of the US) wants to get the money to the widow as painlessly and with the lowest tax burden as possible. I suggested disinheriting the asset- but then would it go to her heirs, or his heirs (spouse) automatically? Or could she choose the beneficiary to receive the assets? please provide any additional thoughts and explanation on how we may be able to make this work. Thank you!
Permalink Submitted by John Peterson on Tue, 2016-03-22 21:51
What you call “disinheriting” is more commonly referred to as “disclaiming”. If the sister makes a proper and timely disclaimer then the IRA will be paid to the contingent death beneficiary under the IRA document (most likely the surviving spouse or the estate of the decedent) and she will have no say.If she doesn’t like that result her only other option is to take a taxable distribution from the IRA and gift the net proceeds to the spouse/kids.
Permalink Submitted by Alan - IRA critic on Tue, 2016-03-22 23:01
Since there are no contingent beneficiaries named on the IRA, the IRA agreement will have to be carefully checked to determine the default beneficiary in the event the sister files a qualified disclaimer within 9 months of his death. While it could be the surviving spouse, it is much more likely to be client’s estate. If so, then client’s will would determine who is to be the beneficiary. If no will, state intestate provisions would likely result in the surviving spouse inheriting all or most of the IRA. But the sister cannot re direct the inherited IRA if she disclaims. The IRA will be inherited according to the contract and probably his will. Therefore, all these details will have to be checked out in the order listed. There is no time to waste because of the disclaimer time limit.
Permalink Submitted by Brian Smith on Fri, 2016-03-25 13:53
If you are a beneficiary of a 401(k) that is a non-spouse, but family member of the deceased, can you disclaim this and have it pass to another family member?
Permalink Submitted by Alan - IRA critic on Fri, 2016-03-25 19:15
If the non spouse beneficiary disclaims and there is no contingent beneficiary, if the plan owner is married at the time the plan will pass to the surviving spouse by law unless the surviving spouse has signed a waiver. If no surviving spouse, the plan will pass according to the plan default provisions which in most cases would be to the owner’s estate. The owner’s will would then determine where the plan death benefits go. In no event can the beneficiary re direct the plan to someone not determined using the above determinations.