Beneficiary options from a common accident
Scenario:
A husband and wife (age 60+) were killed in a murder case. The husband passed 11:45 P.M. and the wife passed about 2 hrs later in surgery (1:57 A.M.) The husband had a 401k that listed his wife as primary beneficiary and their 2 adult children as contingent. The custodian, Charles Schwab, is stating that since the husband passed first, the 401k must be distributed to the wife’s estate.
Is this correct?
If so, can the children still defer taxes over a 10 year period or will the distribution to the estate be taxable immediately?
If they can still take out the funds over 10 yrs, how do they need to set that up?
Permalink Submitted by Alan - IRA critic on Fri, 2020-05-22 16:50
What Schwab indicates would be typical of most plans. But no one should agree to a distribution until it can be determined if the executor of wife’s estate should pursue a disclaimer filing (9 month deadline) on behalf of the wife. That would result in the contingent beneficiaries being treated as designated beneficiaries, and allow them to request a direct rollover to separate inherited IRA accounts. It would avoid the tax impact of a lump sum distribution to the estate. If the deaths occurred this year, the Secure Act will apply and probably the 10 year rule. If prior to this year, then the children can stretch the inherited IRAs over their life expectancies.
Permalink Submitted by Richard Fritts on Tue, 2020-06-02 15:26
This is brilliant advise.. thank you!
Permalink Submitted by Bruce Steiner on Sat, 2020-05-23 19:23
Also many states have a statute whereby, unless you specifically provide otherwise, someone who survives another but dies within 120 hours is treated as having predeceased the other. The lawyer handling the estate should be able to advise whether there is such a statute, and if so, whether it would apply.