Any downside to designating a spouse as primary beneficiary and childr

[John G]

Is there any downside to designating a spouse as primary benefitiary and children as (equal or otherwise) secondary benefitiaries with the view that the spouse could choose to disclaim and allow the Roth to pass to the children? I could see this as an attractive option to allow some additional flexibility at first spousal death. And, is there any practical time limitation on disclaiming?

[BPickerCPA]

Disclaimers must be made within 9 months of death.

[Mary Kay Foss]

In addition to the 9 month requirement, the person disclaiming cannot receive any benefits from the disclaimed asset before the disclaimer. This could be a problem if the decedent didn't take the final RMD before death.

I always had to a "deathbed planning list" - take the current year RMD.

[BPickerCPA]

Mary,

That's an interesting statement about not being able to disclaim if one has taken the decedent's year of death MRD.

I'm writing a book on retirement plans and the new rules, and I addressed this question in the book. Originally I took the position that you mentioned, but rethought it. I now believe that since PARTIAL disclaimers are permitted, one could take the year of death MRD, and disclaim the balance of the account, as long as no other actions were taken to indicate acceptance of the account. I believe that it's analogous to the situation where you were left a $100,000 bequest in the will. The executor gives you a check for $10,000 which you accept. I believe you can still disclaim the other $90,000.

Do you have specific cites for your position? I looked at the examples in the regs. NOne are on point (are they ever?) but some are close enough to make me think I'm right.

[Mary Kay Foss]

Barry I think you've convinced me. Disclaimers are a little more complicated in a community property state but my statement about the survivor benefiting from a late MRD was something I'd heard from a local attorney and didn't verify.

I looked at GCM 39858 which specifically allows a disclaimer of an IRA and although it is not directly on point it's a good discussion. I guess that the late MRD is actually the decedent's income and receipt of it by the survivor is not an acceptance due to a right received as beneficiary due to the death of the decedent.

Mary Kay

[John G]

Thanks for all of the above comments... but I think they leave some of the question unanswered. Other than the 9 month window, are there downsides or cautions to spouse=1, children=alt. My first reaction is that this is a simple way to preserve the option of how to treat assets at the time of first death. If the spouse does not need the funds on first death, disclaim and pass assets to the alternate beneficiaries. It seems simple, which is why I ask if their are any hidden dangers or problems with this structure.

[Mary Kay Foss]

It is a simple way to arrange things. I've seen beneficiary designations where the spouse is the primary, the children are next, the family trust third etc.

It can be difficult to have two sets of disclaimers, especially if any of the beneficiaries are minors but usually you're just talking about the spouse's disclaimer.

One of my clients has a spouse with a disease that renders her incompetent at times. His thought was to name the daughter as primary bene with the wife as contingent but he also wants his daughter to promise to disclaim if his wife survives him. I guess that's the only other downside is having a beneficiary who does not have the capacity to disclaim.

Mary Kay