Advanced Underwriting Consultants

Question of the Day – March 31

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 have a client who named her child as the beneficiary of her IRA.  The beneficiary agrees that the surviving spouse should have been the beneficiary, and the beneficiary wants that to happen.  Is it possible to re-direct the IRA money to surviving spouse without an adverse tax result to the child?

Answer: Maybe, through the use of a qualified disclaimer.

Federal tax rules allow an heir or account beneficiary to essentially say “no take” with respect to amounts they are entitled to through the use of a qualified disclaimer.  To be effective, the following requirements must be met:

The disclaimer must be in writing;

The written refusal must be received by the transferor, his legal representative, or the holder of the legal title not more than nine months after the later of

  • the date on which the transfer creating the interest is made
  • or the date on which the recipient reaches age 21;

The recipient has not accepted the interest or any of its benefits; and
The property must pass to someone other than the person making the
disclaimer.

If a person makes a qualified disclaimer, for Federal tax purposes, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer.

If the child makes the disclaimer, he will be treated as if he pre-deceased the client.  If the spouse is the contingent beneficiary, the spouse will be entitled to the IRA.

If there is no named contingent beneficiary, the estate will be the successor beneficiary.  Whether the surviving spouse will ultimately receive the proceeds of the IRA will depend on who the heirs are of the decedent’s estate.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.