Advice on an Inherited IRA / Beneficiaries Explanation

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coquette
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Advice on an Inherited IRA / Beneficiaries Explanation

Post by coquette » Fri Jun 22, 2018 11:42 pm

Hello -

We lost my grandfather in February at an advanced age. He had 2 IRA Trad & 1 IRA ROTHs. On the Traditional IRAs he named 3 primary beneficiaries - his 3 living children (A, B, C.) He had 1 child (D) who predeceased him and she left 1 adult son (D1). He also named 1 contingent beneficiary - me - the oldest granddaughter (A1) (each primary beneficiary has 2 living children so there are 7 grand children total).

When the primaries went in to get this sorted 3 months ago they were directed about the disclaimer process. My parent (A) wanted to disclaim to me and the custodians said this was easily done as long as there was a disclaimer from (A) and a partial disclaimer from (B) and (C). The primaries were directed that B & C could not disclaim to their own descendents - they could only disclaim to each other or me as the named contingent beneficiary.

All of these disclaimers were submitted in April.

Today I got word from the custodian than they want a letter from me that says I am the only living child of my parent. They explained it this way in their letter:
"[we request] a birth certificate and a letter from A1(me) signed stating she is the sole child of A for the Roth IRA distribution to take place Per Stirpes." But I am not the sole child. There is an A2!

This is the first time my parent or I have been told of a per stirpes designation on ANY of the IRAs. Neither my parent nor I is the executor of the estate. The custodian will not share the beneficiary documents with us and we have seen nothing in writing about the beneficiary designations.

My question to you all:
If the ROTH IRA is per stirpes, what of the child (D1) of deceased D? Wouldn't he be included as an equal share? So it wouldn't it be: A (25%) B(25%) C(25%) D1 (25%)? And then A, B, C, and D1 have the option to disclaim to their descendants?

Why would I - as the beneficiary - be providing documentation on my parent's other descendants? Isn't that something that should come from the executor?

Given that there has been CONSIDERABLE discussion about how all this was done, what should I do as the information on beneficiaries designations seems to be evolving? What can I (or my parent) ask for to insure this is done correctly?

Thanks in advance for any guidance here. :)

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FIREchief
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by FIREchief » Sat Jun 23, 2018 12:10 pm

It sounds like the beneficiary designations included a per stirpes designation at your parent's level.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

bsteiner
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by bsteiner » Sat Jun 23, 2018 9:12 pm

Most people with children A, B and C, and issue of a predeceased child D, would leave their IRA in equal shares, one equal share to or in trust for each child (or the child's issue if the child predeceases or disclaims).

But we don't know how this particular IRA owner left his IRA. What is the contingency?

A person who disclaims can't control where the disclaimed share goes. It goes in accordance with the beneficiary designation, or if the beneficiary designation doesn't say, then it goes as if the person disclaiming predeceased the IRA owner.

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celia
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by celia » Sat Jun 23, 2018 10:03 pm

It looks like there are 3 IRAs based on what you wrote. You told us how the beneficiaries are listed on one (or 2?) IRAs, but not on all of them. (Each IRA can have different beneficiaries or have "per stirpes" or not.) I understand you to say that the traditional IRAs have 3 primary beneficiaries, A, B, C and you are the only contingent beneficiary and there is no "per stirpes" on the beneficiaries. In this case, if A disclaims anything, it goes for B and C equally. But if B or C also disclaim what A doesn't want, it will go to you as you are the only contingent beneficiary. D1 is not even in this picture. The rules are completely different if "per stirpes" is used.

If any of the primary beneficiaries want to do something different than what was listed, they will need to find out and understand who all the primary and contingent beneficiaries are. The simplest way is for someone to ask the custodian HOW they can find out. In the worst case, a court order may be needed. (How about asking the agent's supervisor?)

But another issue might be to also find out what the IRAs hold. Is it easily divided in thirds or fourths? DH was one of multiple beneficiaries of an IRA. There was a Ginnie Mae bond in it that was split, such that no one individual can now sell that fragment, since only whole bonds can be sold. Each person is stuck with a tiny "asset" that will pay out less than a dollar a month for the next 15 years or so. If they had known that, most of the beneficiaries would have disclaimed that tiny piece and let someone else have it. Finding out what the holdings are might also need a court order.

bsteiner
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by bsteiner » Sat Jun 23, 2018 10:30 pm

celia wrote:
Sat Jun 23, 2018 10:03 pm
... If A disclaims anything, it goes for B and C equally.
...
But another issue might be to also find out what the IRAs hold. ...
Anything is possible, but I doubt that very many IRA owners would want the share of a predeceased child to go to their other children ahead of the predeceased child's issue.

The financial institution may have been sending periodic statements to the IRA owner, which would show the holdings.

coquette
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by coquette » Sat Jun 23, 2018 10:55 pm

FIREchief wrote:
Sat Jun 23, 2018 12:10 pm
It sounds like the beneficiary designations included a per stirpes designation at your parent's level.
Yes - I *think* the ROTH IRA has a 'per stirpes' designation at my parents level. Is it possible to say "I give equal 1/3 shares to my 3 living children, per stirpes?" Thereby excluding the branch of my deceased aunt (D)?
bsteiner wrote:
Sat Jun 23, 2018 9:12 pm
Most people with children A, B and C, and issue of a predeceased child D, would leave their IRA in equal shares, one equal share to or in trust for each child (or the child's issue if the child predeceases or disclaims).

But we don't know how this particular IRA owner left his IRA. What is the contingency?
I was told that the two traditional IRAs were left with 3 equal primary beneficiaries: A, B, & C with one contingency A1 (me). The process of sorting the disclaimers has been quite laborious (I cant tell why - my parent's was very easy but she did a total disclaim, not a partial one.) The custodians have opened my account but not transferred the money yet as they "make sure all the disclaimers are in order."

Yesterday is the first I have heard that the IRA ROTH is per stirpes. It has never been said in a meeting or in writing to me or my parent. I had been told it was the same as the traditional IRA beneficiary designations - with the 3 living children as primaries and me as the only contingent beneficiary.
bsteiner wrote:
Sat Jun 23, 2018 10:30 pm
celia wrote:
Sat Jun 23, 2018 10:03 pm
... If A disclaims anything, it goes for B and C equally.
...
But another issue might be to also find out what the IRAs hold. ...
Anything is possible, but I doubt that very many IRA owners would want the share of a predeceased child to go to their other children ahead of the predeceased child's issue.

The financial institution may have been sending periodic statements to the IRA owner, which would show the holdings.
Yes - A disclaimed and then B & C did a partial disclaim on the Traditional IRAs.

The holdings are quite aggressive for a someone in their 90s, but thankfully they are reasonably divisible.

bsteiner
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by bsteiner » Sun Jun 24, 2018 7:47 am

coquette wrote:
Sat Jun 23, 2018 10:55 pm
... Is it possible to say "I give equal 1/3 shares to my 3 living children, per stirpes?" Thereby excluding the branch of my deceased aunt (D)? ...
Subject to the spouse's elective share, you can leave your IRA to anyone you want. Occasionally a child predeceases a client and the relationship between the client and the son-in-law or daughter-in-law is such that the client provides for his/her surviving children but not the issue of the deceased child. But most people leave the deceased child's share to the deceased child's issue.

If this is what you want, there are better ways to draft it.
coquette wrote:
Sat Jun 23, 2018 10:55 pm
...
bsteiner wrote:
Sat Jun 23, 2018 9:12 pm
Most people with children A, B and C, and issue of a predeceased child D, would leave their IRA in equal shares, one equal share to or in trust for each child (or the child's issue if the child predeceases or disclaims).

But we don't know how this particular IRA owner left his IRA. What is the contingency?
I was told that the two traditional IRAs were left with 3 equal primary beneficiaries: A, B, & C with one contingency A1 (me). The process of sorting the disclaimers has been quite laborious (I cant tell why - my parent's was very easy but she did a total disclaim, not a partial one.) The custodians have opened my account but not transferred the money yet as they "make sure all the disclaimers are in order."

Yesterday is the first I have heard that the IRA ROTH is per stirpes. It has never been said in a meeting or in writing to me or my parent. I had been told it was the same as the traditional IRA beneficiary designations - with the 3 living children as primaries and me as the only contingent beneficiary ....
You can provide whatever contingencies you want. But it would be very unusual for someone to want the share of a child who is living on the date of the beneficiary designation but predeceases the IRA owner to go to the IRA owner's surviving children ahead of the deceased child's issue.

Many people have carefully drafted Wills. But their Wills don't control their retirement benefits or their life insurance. For many people other than the wealthy, their retirement benefits (if they're older) or their life insurance (if they're younger) are their largest asset, or a major portion of their assets. They should give care to the drafting of their beneficiary designations, making sure to coordinate their beneficiary designations with their WIlls. They should also consider the special tax rules that apply to retirement benefits. The lawyer preparing the Wills should be able to prepare riders to the beneficiary designations as part of the estate planning process.

Alan S.
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Re: Advice on an Inherited IRA / Beneficiaries Explanation

Post by Alan S. » Sun Jun 24, 2018 12:02 pm

If the Roth beneficiary designation includes your parent "per stirpes" and you are A1 but there is also an A2 sibling of yours, your share must be split and the form. Obviously, the custodian does not want to overfund your inherited IRA without knowing how many other siblings exist that would dilute the amount that each receives.

When you cannot provide certification that you are the only living child of your parent, that might trigger additional due diligence on the part of the Roth custodian, as they must be totally sure of the number of living children that would split this share, barring additional disclaimers of course.

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