Question about disclaiming part of an estate

[sheehs1]

My Dad was also co-executor of his mother's estate. The disclaimer just added more complexity to the settlement of an already complex estate. The result was mostly as he intended. All else being equal, I prefer to keep things simple.

I hear you but it really is not complicated. It's basic generation skipping and works if one truly does not want the asset and wants to pass it to their children or heirs. It's the only mechanism I know of that does this. At least while one is still alive.

 

[SecondCor521]

Replies to comments since my last post:

@TexasProud, I believe Dad Does' intent if John Doe predeceases would be that John Doe's portion would go to John Doe's kids. This is unlikely to happen, but it is another reason to add "per stirpes".

@Sunset, I believe the gifts would be subject to the annual gift tax limit.

@pb4uski, the kids currently are in lower tax brackets but will eventually be in higher tax brackets as they get (hopefully good jobs) as young adults. Good point. The amount involved wrt to the Roth is mid six figures. Regarding your next post, I have wondered about partial disclaimers and will mention that to John.

@sheesh1, there is a will (and two trusts), but in the case of the Roth IRA and the traditional IRA, they both have beneficiary designations, which technically override the provisions of the will and trusts as I understand the situation. Although it's really a distinction without a difference, as the will and trusts all say to split things equally among the three children (the will specifies per stirpes, I believe the trust documents do as well).

@MooreBonds, regarding your first suggestion in your first post, John Doe is concerned that his own estate will exceed the estate tax deduction, either through good investments and a long life, or through a change in the estate tax structure by the government. Regarding your second suggestion in your first post, this would eliminate the stretching/sheltering of the Roth IRA. Thank you for your comment about college aid; I had not thought about that angle.

@MooreBonds, regarding your second post, my understanding is that listing a trust (or one's estate) as the beneficiary nullifies the stretch IRA provision. [1] So in this case although there is a trust also, it is not listed as the beneficiary for this reason.

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[1] It is possible, according to an attorney I know, to set up a trust to enable the stretch provision to remain on Roth IRA assets placed inside the trust. But they are difficult to set up / easy to get wrong, so it was advised against in another part of the Doe estate.

 

[Sunset]

Actually an easy, controllable option would be for John Doe to leave things as is and when he inherits the Roth IRA he can always annually give his kids a gift for the maximum annual Roth contribution and they can fund their own Roth IRAs and the kids ultimately get the Roth money without having to use their own cash flow.

One benefit over the other options being considered is that with this John can do a portion if his situation is such that he is uncomfortable doing the whole thing... whereas the disclaimer is probably all or nothing.

Exactly this is what I'm thinking.
John gets the ROTH, lets pretend its $3,000,000 for John's share.
John gifts to his kids annually and has say 3 kids. Thats only $42,000 out of it each year.
In 40 more years John dies. The ROTH is at 6,500,000 now.
John's kids inherit the ROTH via TOD and it is all solved.

 

[mathjak107]

we have a disclaimer trust in place .

it gives either one of us up to 9 months after the death of one of us to split the estate in half with an irrevocable trust .

we needed it because new york has a tax cliff in its estate tax laws .

even though each year new york was raising the exemption up to the federal level if you went over each years limit by 10% you hit a tax cliff .

you owed estate taxes not on the overage but from dollar 1 .

so the disclaimer trusts lets the spouse throw a switch if need be passing 2x the states limit , other wise the trust is transparent and does not play a part if not needed .

 

[SecondCor521]

Exactly this is what I'm thinking.
John gets the ROTH, lets pretend its $3,000,000 for John's share.
John gifts to his kids annually and has say 3 kids. Thats only $42,000 out of it each year.
In 40 more years John dies. The ROTH is at 6,500,000 now.
John's kids inherit the ROTH via TOD and it is all solved.

I did some estimates and this actually will work. The only issue with it that I can see is that the kids cannot donate $14K to their Roth IRA's each year; only $5500. So there would be $8500 left over. But that could be put into a 401(k), or a taxable, or spent or whatever.

Another one would be that a $3M Roth in 40 years would nominally grow to more like $50M, which would exceed the estate tax exemption and trigger a large estate tax bill on John's death. First world problems, I guess, and who knows what the laws will be then.

 

[pb4uski]

Yeah, sounds like a nice problem to have.

 

[N02L84ER]

I thought if you inherited a Roth IRA from anyone other than your spouse, it had RMDs. Wouldn't that stop the Roth IRA from growing so big?

 

[SecondCor521]

I thought if you inherited a Roth IRA from anyone other than your spouse, it had RMDs. Wouldn't that stop the Roth IRA from growing so big?

You're right, it would. Then you'd just have the gifting limits to deal with. Sigh; this stuff is hard to do well sometimes.