The Wrong Beneficiary — Can a Disclaimer Help?

Wednesday, March 17, 2010

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

The IRA owner has died. Only one individual is named on the beneficiary form, let’s call him David. He wants to do the right thing and share the IRA with his siblings or the other individuals who should have had a share of the IRA. I know, it is hard to believe but some beneficiaries do want to do the right thing!

So, what can David do? Frequently, beneficiaries look to do a disclaimer. If David disclaims the IRA he will be treated as though he died before the account owner. For many assets, that would mean the asset passes in accordance with the terms of the will. That does not always happen in the case of an IRA.

After David disclaims the IRA, you have to look at the beneficiary form. If there is a contingent beneficiary named, that is who will inherit the IRA after the disclaimer. When there is no contingent beneficiary, then you have to look at the default language in the IRA agreement. Some agreements will say that if there is no beneficiary then the account goes to the spouse, if there is no spouse the account will go to the children. Many IRA agreements will say that if there is no beneficiary, then the account will pass in accordance with the will.

Bottom line, before you disclaim an IRA, you need to know where it will go. The beneficiary cannot direct where the asset goes when he disclaims. Since a disclaimer is a legal document, you should also consult with an attorney familiar with disclaimers to ensure that you meet all the necessary requirements of a qualified disclaimer.

 

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