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TRAD IRA inheritance Question
Old 11-23-2013, 07:10 AM   #1
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TRAD IRA inheritance Question

My mother recently passed and has a Traditional IRA (180K) in her estate. The will states that assets are to be divided equally between myself, brother and sister. The problem is that my brother, who is also the executor of the estate, is listed as the only beneficiary on the IRA.

Any ideas on how to disburse the funds somewhat equitably between the three within a five year period?
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Old 11-23-2013, 07:55 AM   #2
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The problem is, your brother is entitled to the entire IRA if he wishes to keep it plus 1/3 of the remaining assets covered by the will. Is he willing to give up $120,000? If he is, then you need to speak with a lawyer about a disclaimer.
Bruce
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Old 11-23-2013, 08:26 AM   #3
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Here is an interesting/useful article about disclaimers:
Disclaiming Inherited Plan Assets

There are some important timing and other issues involved and your state may also have specific requirements not covered so as MBM pointed out, legal help may be useful. I didn't realize that you could disclaim just a part but apparently you can.
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Old 11-23-2013, 08:31 AM   #4
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Originally Posted by 5oneanddone View Post
My mother recently passed and has a Traditional IRA (180K) in her estate. The will states that assets are to be divided equally between myself, brother and sister. The problem is that my brother, who is also the executor of the estate, is listed as the only beneficiary on the IRA.

Any ideas on how to disburse the funds somewhat equitably between the three within a five year period?
One thing that surprised me regarding IRA beneficiaries happened with my grandmother's IRA at Vanguard, which was subject to whatever % outlined in the letter the executor of the estate sent them.

At Vanguard, their approach was the following (your experience may vary with other firms):

After her passing, no activity could take place in the account, because it was legally in the name of a deceased individual, and only she had access to it. Therefore, all assets in her IRA had to be transferred to an "intermediate" IRA (forgot the legal title of it, something referencing grandmother's name and estate, etc.). From this intermediate IRA was taken that year's RMD, since she hadn't taken a distribution from it yet in the year of her passing.

Then, from this new intermediate IRA was then distributed shares to the various heirs into new Beneficiary IRAs at Vanguard (they wouldn't let us do a direct transfer to another broker,it HAD to first be deposited into a Vanguard Beneficiary IRA for each heir, even if you weren't going to keep it at Vanguard!)

The estate executor had to send a letter into Vanguard instructing them how to distribute up the percentages of the intermediate IRA into each heir's own beneficiary IRA.

I found it odd that they completely relied on the letter from the estate executor to tell them how to divide up the IRA, considering that grandma had filled out her IRA form for beneficiaries (I helped her fill it out personally, so I know it was done properly). This was important, because her IRA beneficiary information differed from her Revocable Trust percentages, and I made sure the executor followed the original IRA beneficiary %, and not the Revocable Trust.

As I said, your experience may vary at another firm, and Vanguard may even have different rules and procedures. Even though Vanguard is a great low expenses firm, I found their "Account Transition Team" (polite way of describing their Estate department that handles Vanguard accounts of deceased people) to be somewhat clueless and incompetent with the information and service we received overall, for both her IRA and a taxable investment account she had.

So, to respond to your post - depending on the company it's at, and depending on their rules and procedures, it may be possible to use a different percentage than what was originally listed, without having to go through complex official disclaiming letters, etc.

Is that technically legal? It's kind of a gray area - the 'intermediate' IRA that all of the funds went to technically didn't have the beneficiary information filled out, so it would take a different legal path than the original IRA. And that could legally permit the executor to simply use whatever % they want.

Kind of makes me a little nervous about just how rock solid some forms are that we fill out with brokerages, and how less-than-competent staff can unravel it all.
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Old 11-23-2013, 09:14 AM   #5
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MooreBonds........thanks for your scary story about VG. I had a similar experience w/ them re: RMDs from a 401K held by them. Several times I called to be sure I could make RMDs flexibly by telephone instructions at times, amounts, withholdings of my choosing. Both times, the answer was yes. Then when I finally went to make one, they balked and insisted on written instructions and even then the supe seems confused about the requirements
for certain items...........so everybody concedes the low expense title to them but, like you, I sometimes wonder about the other aspects. Because of that experience , I decided to elsewhere for a 529 plan since they didn't seem too flexible about telephone instructions. If you do things online perhaps things are different but that's not my first choice.
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Old 11-23-2013, 09:45 AM   #6
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Most investment sites are skittish about giving advice on IRA inheritances, and usually recommend a lwayer.

The situation should serve as a heads up for anyone who has a will, ie. the wording that involves beneficiaries can also have tax implications such as "stretching withdrawals".
Some preliminary stuff here:

What to Do With an Inherited IRA | ElderLawAnswers

Of course this is after the fact, but should be a consideration for future decisions.
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Old 11-23-2013, 10:55 AM   #7
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Quote:
Originally Posted by 5oneanddone View Post
My mother recently passed and has a Traditional IRA (180K) in her estate. The will states that assets are to be divided equally between myself, brother and sister. The problem is that my brother, who is also the executor of the estate, is listed as the only beneficiary on the IRA.

Any ideas on how to disburse the funds somewhat equitably between the three within a five year period?
My understanding is that the IRA beneficiary designation trumps the will so technically, your brother would get the $180k tIRA and other assets of the estate would be split among you and your siblings.

However, if your Mom didn't intend this outcome and your brother isn't greedy then there may be ways for the IRA to be split 3 ways, in which case the executor should consult with counsel.
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Really?
Old 11-23-2013, 11:01 AM   #8
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Really?

Moorebonds,

I find it hard to believe Vanguard was this negligent in allowing the PR to direct the distribution of the IRA. They are opening themselves up to a lawsuit ignoring the beneficiary designation.
Bruce
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Old 11-24-2013, 10:51 AM   #9
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Moorebonds,

I find it hard to believe Vanguard was this negligent in allowing the PR to direct the distribution of the IRA. They are opening themselves up to a lawsuit ignoring the beneficiary designation.
Bruce
All I'm saying is what my personal, first-hand experience was.

If the letter from the estate executor directed them to disburse the assets from the intermediate IRA differently from what the original IRA stated, then perhaps it would have raised a red flag - but I don't know why they would require a letter from the estate executor to begin with if they would only follow the IRA beneficiary designations.
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Old 11-25-2013, 07:36 PM   #10
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Another good article from a respected financial writer:

Understanding Inherited IRAs Can Save You Money on Taxes - Retirement - AARP
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Old 11-25-2013, 09:51 PM   #11
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It seems she wanted the IRA to go to your brother, and the rest to be divided into thirds, unless your brother knows otherwise.
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Old 11-26-2013, 07:51 AM   #12
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It seems she wanted the IRA to go to your brother, and the rest to be divided into thirds, unless your brother knows otherwise.
This was basically my initial response. Perhaps the brother isn't willing to cough up $120,000 which he is entitled to keep. The OP seems to be implying this was a mistake, but it very well could have been intentional.
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Old 11-27-2013, 09:18 AM   #13
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Difficult to judge intent..........if the general public were given a quiz re:
this situation w/ IRA beneficiary and a will, I wonder what the results would be.
I imagine a high % would say the will rules so if the willmaker were in that group...............

Someone w/ insight into family dynamics might have a clue.
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Old 11-27-2013, 09:33 AM   #14
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I would agree. I think most testators are unaware that beneficiary designations trump the will, but it is hard to judge intent based on such limited information.
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Old 11-27-2013, 09:37 AM   #15
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Difficult to judge intent..........if the general public were given a quiz re:
this situation w/ IRA beneficiary and a will, I wonder what the results would be.
I imagine a high % would say the will rules so if the willmaker were in that group...............

Someone w/ insight into family dynamics might have a clue.
I expect people make these mistakes a lot. In 2000 DW and I went to a series of night classes for investments, retirement etc, at the local university.

During the session on Estate Planning the speaker explained how important it was to get the beneficiary information correct because it supersedes a will, and he went on to say that we wouldn't believe how many cases he had come across as an executor where the deceased man had left everything to his wife in his will but had forgotten to update his information on his 401k or IRA and the money had gone to his first wife.
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Old 11-27-2013, 10:53 AM   #16
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If the one sibling wishes to keep the entire IRA, intent of the testator is irrelevant. It's his to keep. Of course, I realize how popular he might be among his siblings for the remainder of their lives.
Bruce
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Old 11-27-2013, 02:58 PM   #17
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If the one sibling wishes to keep the entire IRA, intent of the testator is irrelevant. It's his to keep. Of course, I realize how popular he might be among his siblings for the remainder of their lives.
Bruce
It might make the interpersonal dynamics at the Thanksgiving Dinner table somewhat interesting.....

I actually have a situation right now where my aunt and I could just keep a great aunt's money (a long story but an unintended consequence of the way certain accounts were set up) but we plan is to distribute the money consistent with great-auntie's will. We just wouldn't feel right doing anything else and we value our family relationships and reputations much more than the money involved.
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Old 11-27-2013, 03:52 PM   #18
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We just wouldn't feel right doing anything else and we value our family relationships and reputations much more than the money involved.
MIL once told us that when her father died he left everything to the 3 girls and nothing to the son, with whom he'd had a long standing argument.

She said they divided the estate up equally 4 ways regardless of his wishes. They all got on very well together and were not going to let their father sour their relationship from the grave.
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