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Is there a way to disclaim an inheritance but be able to decide who gets the inheritance that you disclaim?

FYI, we are talking about a non-spousal inherited traditional IRA account. The original traditional IRA was left to siblings in a share share alike fashion. One sibling would like to not take the inheritance but be able to direct who gets their share of the non-spousal inherited traditional IRA. Is this possible?

  • very interesting questions.. looking forward for a right answer. – Natwar Lath Feb 9 '12 at 16:41
  • What would be the problem with accepting the inheritance and then giving the money to the person you want it to go to? – DJClayworth Feb 10 '12 at 14:31
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According to Investopedia disclaiming is easy but you will not have the right to signify who receives the inheritance. Instead, "the assets will pass to the contingent beneficiary as if the first beneficiary had died."

Note that disclaiming by the sibling could still result in the desired outcome - it all depends on how the will was written or, if no will, who is next in line in the eyes of the court. Strategic disclaimers are not uncommon.

  • I think it will be divided among the remaining heirs and it would not involve contingent beneficiaries. – Alex B Feb 9 '12 at 16:05
  • Investopedia made it clear in an article titled "Disclaiming Inherited Plan Assets": The assets must pass to the successor beneficiary without any direction on the part of the person making the disclaimer. – blindsandal Feb 9 '12 at 18:56
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No. As gef05 states, the assets go to the contingent beneficiaries. But, to clarify, 401(k) and IRA accounts pass according to beneficiary designations on the account, they are not part of the probate estate. (i.e. the Will is ignored so long as the form is on file) They only become probate estate assets if there is no beneficiary form on file with the account custodian.

In our case, we have the spouse as primary, and our daughter as secondary on the beneficiary form. This way, a disclaiming by the surviving spouse will send the account to the kid.

  • My sibling's problem in this non-spousal inherited IRA is that the contingent beneficiaries are not the same as the one's which my sibling would like to shift the inheritance. – blindsandal Feb 9 '12 at 18:56
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    One can't redirect, only disclaim. I suggest she take the money, keep it in the inherited IRA, update new beneficiaries, and pass along the annual RMDs (after paying the tax). – JoeTaxpayer Feb 9 '12 at 20:33
  • @JoeTaxpayer That is a good idea. Another that may be desirable, depending on the specific circumstances, would be to take the IRA, cash it out, and pass along the remainder after paying the penalties and taxes. This probably results in less money to the final recipient, but avoids ongoing hassles. Depending on the value, it may also run into gift tax problems. – KeithB Feb 10 '12 at 16:41
  • @KeithB - an inherited IRA has an RMD but no maximum. OP can consider taking out enough to stay in current tax bracket. She and spouse can gift up to $13k each to any recipient. I never thought of the annual withdrawal and form as a hassle, but I suppose some might. – JoeTaxpayer Feb 10 '12 at 17:50

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