Name a New Beneficiary?

[Guest Mary Ann]

A non-spouse beneficiary inherits an IRA where the owner had begun minimum distributions. The beneficiary continues distributions as rapidly as the owner was taking them.

Question: Can the beneficiary name her own new beneficiary to inherit the IRA upon the beneficiary's death? Or do the proceeds automatically go to the beneficiary's estate?

It would seem that some designation should be able to be made (leaving it to her trust or to another individual) but in all my research I cannot find an answer to this.

Thanks for any help.

[Guest P A Weick]

IRS privately ruled that it is OK for federal tax purposes for a beneficiary to name a beneficiary in PLR 199936052 as long as the first beneficiary is only naming the second beneficiary to receive the distributions at least as rapidly as the first beneficiary. Your state law will decide if you have the power to name such a beneficiary's beneficiary and your service providers contract may also limit that ability.

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[Bruce Steiner]

Obviously the money has to go somewhere.

Assuming the original IRA owner didn't restrict it, the beneficiary gets to decide where it goes.

Assuming no creditor or elective share problems, it hardly matters whether the beneficiary decides by Will or by designation with the IRA custodian. The beneficiary should check with the IRA custodian (and read the IRA agreement) to ascertain the IRA custodian's procedures.

The beneficiary should be careful to make sure that the IRA custodian won't insist on dumping out the entire balance upon the beneficiary's death, despite the disastrous tax consequences. If that is a problem, the beneficiary should move the account to another custodian.

We generally avoid this problem, by leaving IRAs to non-spouse beneficiaries in trust rather than outright.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL