Irs Official Positions?

[Guest David Hammond CISP]

Hi Everyone,

Two issues to inquire about.

Has anyone heard of an "OFFICIAL" IRS position (in writing) on the applicability of the New RMD Rules for beneficiaries of decedent IRA's were the IRA owner died in 2000 or 2001. IRS seemed to indicate verbally last spring that this would be possible but it was not an official IRS position at that time a while back. Has IRS so ruled? If so is any citation available?

Has anyone seen any additional "OFFICIAL" IRS information on the ability of an IRA Beneficiary to name a Beneficiary during their residual payout period. Yes, there have been several PLR's on this issue dating to the early 1990's and yes many IRA Fiduciaries do it routinely these days, still many do not. I have had several Pension Attorney's indicate to me that the naming of a beneficiary is the province of only the Trust Grantor and not the Beneficary. You can conjure up lots of implied liability in this regard, yet the NEW RMD Rules seem to cry for the ability for this to be permitted.

Looking for tangible information and not conjecture. ;-)

Thanks to all.

David H.

[BPickerCPA]

David,

I haven't seen anything official on the applicability of the new regs to beneficiaries when the participant died in 2000 or 2001. I don't think anyone else has either. I accept what I personally heard from people in DC, which is that the bene's can use the new rules.

The question of a bene naming a bene, is NOT a tax issue. All the IRS has said is that it's permitted, but it's really an issue of local law. The existence or absence of a bene's bene does not in any way affect the minimum distributions.

However, I have to comment about pension attorneys who state that it's the province of the participant, not the bene, to name a subsequent bene.

If I inherit an IRA, it becomes my asset. The tax law permits me to keep in a tax deferred state, as long as I remove a certain minimum amount each year. But that is my choice to only take the minimum; I can always take more.

Once I inherit the account, it's ultimate disposition then is up to me. I can leave any balance in the account to my wife, my children, my alma mater, et al. This is no different than any other asset I own, either because I purchased it, earned it, or inherited it.

Unless a trust has specifically been set up to restrict my ownership rights, no one can tell me (other than spousal rights) who I can or can't leave my assets to.

The right of a beneficiary to name a beneficiary is merely a probate avoidance mechanism, so that the inherited IRA is not part of my PROBATE estate. It most definitely is part of my TAXABLE estate.

I would be hesitant to put too much faith in any attorney who does have a grasp of basic property rights.

My 2 cents.

Barry

[Bruce Steiner]

Prop. Treas. Reg. § 1.401(a)(9)-1 Q&A-2 says that:

"The distribution rules of section 401(a)(9) apply to *all* account balances and benefits in existence on or after January 1, 1985. Sections 1.401(a)(9)-1 through 1.401(a)(9)-8 [the new proposed regulations] apply for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2002."

The preamble to the new proposed regulations says:

"For determining required minimum distributions for calendar year 2001, taxpayers may rely on these proposed regulations or on the 1987 proposed regulations."

On the other hand, the preamble also says:

"For distributions for the 2001 calendar year, IRA owners [note the absence of the word "beneficiaries] are permitted, but not required, to follow these proposed regulations in operation, ...."

So the new proposed regulations are helpful as to required distributions for IRA beneficiaries, but not ideal.

The more controversial issue has been beneficiaries of IRA owners who died before 2000.

As to a beneficiary naming a beneficiary, the balance has to go *somewhere* if the beneficiary dies before receiving all of the IRA benefits. (Of course, except for benefits payable to spouses, I prefer to have IRA benefits payable in trust rather than outright, for the same reasons that I prefer to have assets generally pass in trust rather than outright.) But if you leave an IRA outright to someone other than a spouse, about half the time the person will die before his/her life expectancy. For the most part, it makes very little *substantive* difference whether the beneficiary selects the succeeding recipients by Will or by designation with the IRA trustee/custodian.

But here the new proposed regulations are helpful. Prop. Treas. Reg. § 1.401(a)(9)-5 Q&A-7(d)(1) says:

"If the plan provides (or allows the employee to specify) that, after the end of the calendar year following the calendar year in which the employee died, any person or persons have the discretion to change the beneficiaries of the employee, then, for puropses of determining the distributino period after the employee's death, the employee will be treated as not having a designated beneficiary. However, such discretion will not be found to exist *merely because a beneficiary may designate a subsequent beneficiary for distributions of an portion of the employee's benefit after the beneficiary dies."