IRA and qualified plan participant dies intestate

[Belgarath]

Individual dies intestate, with substantial IRA and Qualified plan funds. Possibly in the state of Texas, if that makes any difference. This is completely unrelated to any plan for which we do TPA work, so I have no vested interest in any potential answer.

Here's my question - under the language of the statute/guidance, the sons could not roll over to an "inherited" IRA for RMD purposes.

There are many PLRS allowing a SPOUSE to do a rollover in this situation. Since the non-spousal rollovers are relatively new, it doesn't surprise me that there are no PLR rulings (that I'm aware of) for a similar nonspousal situation.

My question, for any of you tax attorneys who care to take a stab, is this:

(A) - what is your guess as to the liklihood of success in applying for a favorable PLR ruling allowing a non-spousal rollover?

(B) - not asking you to reveal your fee structure, but if you were to make a guess on a reasonable range of attorney fees and IRS fees to apply for such a PLR, what might that be? For example, less than $10,000? $10-20,000? More?

Many thanks for any input. (Edit was for a typo)

[Guest Sieve]

Qualified plan and IRA assets do not pass under state intestacy laws. They pass to those named by the participant/owner in the plan/IRA beneficiary designation form or under the provisions of the plan/IRA which identify the beneficiary in the absence of a valid designation of beneficary. Am I missing something--e.g., have the assets in your OP already passed to the estate either under the beneficiary designation form or under the provisions of the plan/IRA? If the plan/IRA assets passed to the estate and are held there, then they would pass under intestacy laws if there was no will.

But I don't think that helps your situation. I don't believe those PLRs you reference permit the spouse to rollover from an intestate estate, but rather from a trust or from an estate subject to a will, because the requirements for the spouse to be allowed to rollover are not found in intestacy--spouse isn't executor, isn't entitled to income and to assign, etc., etc. So, I don't think your approach will work.

I hope someone else will either confirm or poke some sieve-like holes in my answer . . .

[Belgarath]

Sieve - while I readily admit my ignorance of estate law, I'm not sure I understand. There was no "designated beneficiary" named, (sorry, I see I forgot to mention this!) so the default beneficiary under the plan is the estate. Since there is no will, wouldn't it then pass under state intestacy laws? How else could it possibly be allocated?

And I don't agree that the PLR's (some of them, anyway) don't deal with intestate situations. See, for example, 9752072. There are others as well.

Hence I revert to my original question for the time being. Thoughts?

[J Simmons]

Sieve - while I readily admit my ignorance of estate law, I'm not sure I understand. There was no "designated beneficiary" named, (sorry, I see I forgot to mention this!) so the default beneficiary under the plan is the estate. Since there is no will, wouldn't it then pass under state intestacy laws? How else could it possibly be allocated?

And I don't agree that the PLR's (some of them, anyway) don't deal with intestate situations. See, for example, 9752072. There are others as well.

Hence I revert to my original question for the time being. Thoughts?

The deceased participant had sons (Post #1) but the estate is the default beneficiary (Post #3). That's an unusual plan document in my experience.

On to your questions. As to #1, the logic should be similar. If a spouse is a beneficiary of an estate over which the spouse has control to allocate all the plan benefits to the spouse's beneficial interest under the estate, the spouse can roll to an IRA. If the sons that similar type of authority over the estate in Post #1 and #3, then perhaps. Two distinctions come to mind, though. One is that the spouse is acting alone; the sons would have to be acting in concert with one another. The sons are a generation further from retirement than a surviving spouse would be. For these reasons, the IRS might not want to give them the same treatment as a spouse.

As to #2, if recollection serves me right, the PLR fee to the IRS is $2,500. I would think legal fees would run $5,000-$12,000 depending on the degree of research and fleshing out of arguments that the client wants to make to go along with $2,500 IRS cost.

[Belgarath]

J Simmons et al - I must apologize, because I see I haven't been including enough information.

In this case, the participant had named the spouse as beneficiary, but the spouse died several years ago, and the participant never updated a beneficiary designation. The plan provides that if there is no valid beneficiary designation at death, it is the spouse, and if there is no spouse, then it is the estate.

Thanks for the fee estimate. Would you care to venture a guess as to the chances of success? I'm not terribly sanguine about it, but that's really an uneducated guess. Seems like a longshot...

[J Simmons]

J Simmons et al - I must apologize, because I see I haven't been including enough information.

In this case, the participant had named the spouse as beneficiary, but the spouse died several years ago, and the participant never updated a beneficiary designation. The plan provides that if there is no valid beneficiary designation at death, it is the spouse, and if there is no spouse, then it is the estate.

Thanks for the fee estimate. Would you care to venture a guess as to the chances of success? I'm not terribly sanguine about it, but that's really an uneducated guess. Seems like a longshot...

I don't think I could give you odds in a numerical sense, such as 3:2 against a favorable PLR. It would depend on how the actual facts stack up against those mentioned in the spousal PLRs. But 'not terribly sanguine' and 'longshot' might be right on target.

[John G]

I am surprised that there are not other defaults than spouse on an IRA or Roth plan.

WARNING to GENERAL READER: This is a good example of what happens when you don't keep beneficiary designations current. Every divorce, death, birth, disowning of a child, college graduation, loss of job, etc. might trigger a circumstance where the IRA owner should reconsider the beneficiaries.

What dumb cluck set up this account and did not establish a set of secondary beneficiaries? The second in line only applies if the first tier has died, OR declines to accept all or part of the assets. Yep, declines to accept all or part. In this case, if the wife had survived, she might have passed on some fraction or all of the IRA assets to the secondary beneficiaries. This "toggle" should be well known to every IRA/Roth owner.

There are some folks who hate see the government get involved in their personal affairs and yet leave the door wide open by not keep current beneficiaries on IRAs, annuities, pensions, or insurance, don't keep a will current, or fail to pay attention to the actual title ownership of real estate. Well, you can't make the horse drink...but perhaps we can point out the problem.

[Appleby]

There are PLRs where the children were allowed to transfer the assets to their inherited IRAs, when the estate was the beneficiary and they were the beneficiaries of the estate. See PLR 200343030. This was for an IRA though, and they were required to use the life-expectancy distribution options that applied to the estate.

I am not sure that this would be permitted a QP. For one, the plan must distribute the assets to the estate so as to conform to the terms of the document. And if the assets are already paid to the estate- I don’t think the non-spouse beneficiaries would be able to complete a rollover of those amounts as non-spouse beneficiaries cannot rollover inherited amounts.

It seems one of the key determining factors here is the ability to complete an indirect-rollover (funds distributed, but were not distributed as a direct rollover).

Under the IRA, the funds would move as a transfer, which is permitted for both spouse and non-spouse.

With the QP, it would be a rollover, which is permitted for a spouse, but not a non-spouse.

PS. I am not an attorney lawyer, but I play one on TV

[Appleby]

Lino to PLR 200343030 here http://ftp.irs.gov/pub/irs-wd/0343030.pdf