No beneficiary named under a Traditional IRA, but the spouse is the sole beneficiary and the executor of the estate

[katieinny]

IRA holder dies without naming a beneficiary under his IRA. The spouse is the sole beneficiary of the estate and the executor. There are a bunch of private letter rulings that say the spouse can roll the money into his/her own IRA, but has the IRS ever come out with a public ruling on this matter? This happens so often, that you'd think the IRS would have made some public comments about this issue.

[mbozek]

IRA holder dies without naming a beneficiary under his IRA. The spouse is the sole beneficiary of the estate and the executor. There are a bunch of private letter rulings that say the spouse can roll the money into his/her own IRA, but has the IRS ever come out with a public ruling on this matter? This happens so often, that you'd think the IRS would have made some public comments about this issue.

See Life and Death Planning for Retirment benefits, P 174

"There is no statute, regulation or case stating [the above] principle. Nevertheless it is the IRS's most well established longstanding, consistent and logical position in the entire field of employee benefits distributions. Dozens of of private rulings have affirmed this principle consistently since 1993."

You need to check the IRA agreement to see who is the default beneficary if no beneficary is designated at death. Most IRAs have eliminated this problem by making the spouse the default beneficiary if there is no designated beneficary at the death of the IRA owner.

[Guest Sieve]

Doesn't the IRA designate default benficiaries if there is no beneficiary designation form on file?

(Clearly, I didn't read mbozek's post . . .)

[katieinny]

Yes, I did find that section in Natalie Choate's book. I was hoping that there might be something other than private letter rulings for the client to rely on since that edition was published. Apparently, the IRA custodian is telling the client that the account must go to the estate. We're working on it.....

[GBurns]

The burden of proving, supporting or explaining a position taken lies with that person. Let the custodian explain etc first, then you can accept or refute.

[mbozek]

Yes, I did find that section in Natalie Choate's book. I was hoping that there might be something other than private letter rulings for the client to rely on since that edition was published. Apparently, the IRA custodian is telling the client that the account must go to the estate. We're working on it.....

Dont rely on the custodian for the answer. The client needs to review the IRA agreement to see who inhertis the IRA if there is no designated beneficiary. Look for the term beneficiary in the Definitions section of the IRA. It is highly unusual for a custodial account to provide that the estate is the default beneficiary. Some custodians have changed the default beneficiary from the estate to the spouse by amendment after the IRA was opened.

[My 2 cents]

On that last point, there was a recent thread involving someone who had deliberately failed to name a beneficiary, thinking that it would make the estate the beneficiary, but the IRA provider had subsequently amended the default order to include spouse then children, and the intention was to not have anything go to a disfavored adult child (the will would have carried that out). Moral - don't fail to explicitly name beneficiaries if you want something abnormal.

[John G]

ALERT and WARNING

Every IRA and Roth account should have designated beneficiaries. Do you really want a bank or brokerage account clerk making policy on the spot?

Also...when you change/move account check the benny designations. If the custodian changes computer systems, clearing house, accounting firm, moves or merges....CHECK AGAIN.

I would recommend this as an annual activity when you are doing the taxes and have the paperwork out.

One reason for designating secondary benny's is that the primary (example your spouse) can decline to accept all (or part) of the assets, allowing some of the funds to flow to secondary benny's (children). That gives your spouse a quick "toggle" as essential a tax / estate planning tool.