ransfer incident to Divorce of an Inherited IRA

[jevd]

Account owner is a Individual who has inherited an IRA as a non-spouse beneficiary.

Ex spouse has been granted a poriton of the IRA pursuant to Divorce Decree.

Account owner and ex-spouse are requesting a transfer incident to divorce under 408(d)(6).

Possible?? If so, how is new account plated as the ex-spouse is not the true beneficiary.

I've been doing this since before ERISA (yes I'm that old) and this is the first time I've seen this.

[Appleby]

Hmmm… I always understood that inherited property cannot be treated as marital property- which would mean that an inherited IRA is not subject to division under a divorce decree. If that’s so, the question would then become, can they agree to include the inherited IRA as part of the settlement on a voluntary basis? I guess so, but I am not certain

If it is allowed, the account would have to be titled to include the name of the decedent ( to show origin)in the registration, and the name of the spouse receiving the assets, using his/her TIN to show who is responsible for including the amount in income. Additionally, for purposes of calculating the distributions, the life-expectancy of the actual beneficiary should be used.

[jevd]

Thanks Appleby,

Fortunately, the ex-spouse is establishing the account at another custodian. We have told our client that we will transfer the account to an inherited IRA in his name at the other custodian and they can handle the issue. Not that we're backing away from the issue but there just isn't any guidance out there and we don't want to subject our account owner additional cost from our side.

[Guest mjb]

Under reg. 1.408-4(g)(2) an account transferred on account of divorce must be established as an IRA in the name of the spouse.

[Appleby]

That is generally true MJB. But I think you will agree that this is an unusual case, and may be subject to different rules. For instance, the cite provided provides that the IRA would be treated as the receiving spouse’s ‘own’ IRA, which is not an option for these assets.

2) Spousal account. The interest described in this paragraph (g)

which is transferred to the former spouse shall be treated as an

individual retirement account of such spouse if the interest is an

individual retirement account; an individual retirement annuity of such

spouse if such interest is an individual retirement annuity; and a

retirement bond of such spouse if such interest is a retirement bond.

I would be hesitant to honor the request to transfer the amount to the former spouse, unless the divorce decree states clearly that the parties are aware that the assets were inherited by the spouse giving up the assets, and he/she is electing to have the amount treated as marital property, despite whether state law provides otherwise. Whick would help to confirm that that all parties involved, including the judge signing the decree, and any attorneys , is aware of the exception that is usually provided for inherited property.

[Guest b2kates]

hte fact that it is inherited and arguably not marital property does not mean that the husband is not trading the value in the IRA in order to keep something that is marital property.

That is generally true MJB. But I think you will agree that this is an unusual case, and may be subject to different rules. For instance, the cite provided provides that the IRA would be treated as the receiving spouse’s ‘own’ IRA, which is not an option for these assets.

2) Spousal account. The interest described in this paragraph (g)

which is transferred to the former spouse shall be treated as an

individual retirement account of such spouse if the interest is an

individual retirement account; an individual retirement annuity of such

spouse if such interest is an individual retirement annuity; and a

retirement bond of such spouse if such interest is a retirement bond.

I would be hesitant to honor the request to transfer the amount to the former spouse, unless the divorce decree states clearly that the parties are aware that the assets were inherited by the spouse giving up the assets, and he/she is electing to have the amount treated as marital property, despite whether state law provides otherwise. Whick would help to confirm that that all parties involved, including the judge signing the decree, and any attorneys , is aware of the exception that is usually provided for inherited property.

[Guest mbm]

Account owner is a Individual who has inherited an IRA as a non-spouse beneficiary.

Ex spouse has been granted a poriton of the IRA pursuant to Divorce Decree.

Account owner and ex-spouse are requesting a transfer incident to divorce under 408(d)(6).

Possible?? If so, how is new account plated as the ex-spouse is not the true beneficiary.

I've been doing this since before ERISA (yes I'm that old) and this is the first time I've seen this.

I am considering granting part of an inherited IRA to my soon-to-be ex-spouse as part of the final settlement, but I have been told that this was not something that the IRS allowed. Can this be done? Are the assets traansfered by me considered to be a withdrawal from my inherited IRA? If it can be done, how?

Thanks.

[jevd]

We are transferring the account as is in the name of the decesed for the benefit of the existing beneficiary. The new custodian needs to work out the issues. We are not attempting to transfer it to the spouse of the beneficiary.

The parties should seek professional tax advice.

[Guest mjb]

Why not ask the person who said it cannot be done to provide the authority for the that statement, e.g, private letter ruling, court decison, etc. and post it on this board for review? As you can see from the posts there are two different views and no known rulings from the IRS. Once the IRA is transferred to the spouse it become the spouse's property and is no longer inherited property since the IRA beneficiary retains no interest in the property after transfer under 1.408-4(g)(2).