Disclaiming IRA and HSA Assets

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By Chad Neumann, CIS, CISP, CIP, CHSP

We have an IRA owner who died and his spouse and two children are the primary beneficiaries of the IRA. The children want the IRA assets to go to the spouse. How can they do this?

This can be done through an IRA disclaimer. A beneficiary who is entitled to receive death benefits from an IRA can file a disclaimer with the financial organization renouncing all or a portion of the beneficiary’s interest in the IRA. In such a case, the disclaimed assets pass as if the disclaiming beneficiary had not been named a beneficiary.

A disclaimer, however, cannot be used to steer the death benefits to a selected person. This means that the disclaiming beneficiary is treated as if she does not exist and the financial organization moves forward with any remaining beneficiaries. In your scenario, this means that if both children disclaim their interest in the death benefits, the spouse as the sole remaining primary beneficiary would receive 100 percent of the assets.

To file a disclaimer, the beneficiary must provide a written, irrevocable refusal to accept interest in the property within nine months of the IRA owner’s death (or within nine months of the beneficiary turning age 21). Before filing the disclaimer, the beneficiary cannot have already accepted any portion of the assets that are being disclaimed.

We have an HSA owner who passed away and named his son as the primary beneficiary and his second wife as the contingent beneficiary. I know that with an HSA, the assets are deemed distributed to a nonspouse beneficiary upon the HSA owner’s death, so can he still disclaim the assets he would receive as a beneficiary?

Internal Revenue Code Section 25.2518-2(d)(1) states “merely taking delivery of an instrument of title, without more, does not constitute acceptance. Moreover, a disclaimant is not considered to have accepted property merely because under applicable local law title to the property vests immediately in the disclaimant upon the death of a decedent.”

Because the nonspouse beneficiary has not claimed his share of the assets as a beneficiary, he still retains the right to disclaim the assets. Based on your scenario, the primary beneficiary could disclaim the assets, and the spouse as the only contingent beneficiary would then receive all the assets.

The same rule would apply to a spouse primary beneficiary. The HSA is deemed to belong to the spouse upon the death of the HSA owner. The spouse still retains the right to disclaim interest in the HSA, as long as the other disclaimer rules have been met.