IRA Disclaimers: What to do When a Beneficiary Refuses to Inherit an IRA
By Chad Neumann, CIS, CIP, CISP, CHSP, CPTD, MCCT
A beneficiary recently came into our financial organization and asked if she was required to take the assets from her father’s IRA. She would prefer if the assets went to her mother instead. Is she allowed to do that?
Maybe. Beneficiaries are allowed to disclaim inherited IRA assets. But beneficiaries cannot direct where the assets will go. When a beneficiary disclaims inherited IRA assets, your organization should follow the same procedures as when a beneficiary predeceases an IRA owner. You should act as if that beneficiary does not exist and then determine whether the IRA owner named other primary beneficiaries. If no other primary beneficiaries were named, then you should determine whether the IRA owner named any contingent beneficiaries. If no other beneficiaries were named, then you should distribute the assets according to the default beneficiary named in the IRA plan agreement.
In this situation, if the mother was named as another primary beneficiary, or as the only contingent beneficiary, then the assets would pass to her because she is the only remaining named beneficiary.
If a beneficiary wants to disclaim inherited IRA assets, are there specific requirements that we must follow?
A beneficiary who wants to disclaim inherited IRA assets must file a qualified disclaimer with your financial organization by the later of nine months after the IRA owner’s death, or nine months after the date on which the beneficiary turns 21.
A qualified disclaimer must be a written, irrevocable refusal to accept an interest in the IRA. Once the beneficiary has made a written election to disclaim the assets, he can’t change his mind. It is recommended that the beneficiary sign a disclaimer in the presence of a notary public.
If a trust or estate is named as the beneficiary, can a disclaimer still be completed?
If a trust or estate wants to disclaim the assets, each individual beneficiary of the trust or estate must disclaim their interest in the IRA. A collective disclaimer made by an executor on behalf of the estate, for example, is not valid because the executor represents the estate, not those that benefit from it.
Our client and her sister were both named as primary beneficiaries of an IRA. Our client’s sister predeceased the IRA owner, so the client wants her deceased sister’s portion to go to her sister’s children who were named as contingent beneficiaries. Can a beneficiary disclaim a portion of the assets?
Yes, a beneficiary may keep a portion of her inherited IRA balance and disclaim a separate portion of the assets. For example, a beneficiary may withdraw the IRA owner’s year-of-death RMD and then choose to disclaim any remaining assets in the IRA. But be aware that beneficiaries cannot disclaim any assets that they have already accepted.
Remember, beneficiaries cannot direct where the assets go, but if the deceased sister’s children were the only named contingent beneficiaries, then they would receive any assets that were disclaimed.
