Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I am working with a family that has an unusual circumstance.  Dad died in 2009, leaving an IRA naming his wife the beneficiary.  She died in 2012 without ever taking control of the account.  My client, the deceaseds’ daughter, was the contingent beneficiary of Dad’s account.  Is she entitled to the IRA?

Answer: Maybe, but not because she was the beneficiary of Dad’s account.

At Dad’s death, the IRA account’s ownership changed to the surviving spouse—even though Mom didn’t do anything to exercise control over the account.  At Mom’s subsequent death, her beneficiary would be the one entitled to the account.  Since under the facts given, Mom didn’t have a named beneficiary, Mom’s estate would be entitled to the money—not Dad’s contingent beneficiary.

The daughter may still be entitled to the money in the IRA if she is Mom’s lawful heir and no one has a prior claim to the IRA in Mom’s estate.  That’s something that would need to be sorted out during the estate administration process for Mom’s estate.

Treas. Reg. §1.401(a)(9)-3, A-5, says that if a surviving spouse fails to make any election after the death of the decedent, on the subsequent death of the surviving spouse, the IRA will be treated as her own for the purpose of the stretch rule.  Thus, any stretch options will be based on the assumption that the estate is the beneficiary of Mom’s IRA.

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