A recent Internal Revenue Service decision allowed a beneficiary to disclaim interest in retirement accounts despite receiving postmortem required minimum distributions.
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In PLR 201125009
, the Internal Revenue Service addressed whether postmortem required minimum distributions automatically deposited into an account and the transfer of the balance of this account constituted acceptance of a retirement account within the meaning of IRC section 2518 thus precluding the transferee’s ability to disclaim an interest in the retirement account. The IRS allowed the transferee to disclaim the interest in the retirement accounts.
The decedent had reached his required beginning date prior to death. RMDs were periodically automatically deposited into a bank account held jointly with rights of survivorship by the decedent and his spouse.
The decedent died on day A. His spouse died on day C. On days B, D, and E RMDs were automatically deposited into the bank account. The bank account contained funds other than the RMDs that were deposited postmortem.
The court appointed an administratrix of the spouse’s estate. The administratrix closed the bank account and opened a new bank account, transferring the entire balance from the old bank account to the new bank account for the spouse’s estate.
The decedent’s will created a disclaimer trust which was to be funded by the retirement accounts if his spouse survived him and disclaimed interest in the retirement accounts.
The administratrix petitioned the court to disclaim the spouse’s entire interest in the retirement accounts and the spouse’s interest in the disclaimer trust. The court granted the petition. Also, the administratrix notified, in writing, the brokerage firms which managed the retirement accounts and the decedent’s estate that the spouse was disclaiming these interests.
The taxpayer represents that proceeds from the automatically deposited RMDs remained in the new bank account until the date the petition to disclaim was granted. Taxpayer also represented that no other proceeds have been distributed to Spouse or her estate from the retirement accounts.
The taxpayer asked for a ruling on whether postmortem required minimum distributions automatically deposited into an account and the transfer of the balance of this account to another account constitutes acceptance of a retirement account, thus precluding transferee’s ability to disclaim the remaining interest in the retirement account.
To make a qualified disclaimer IRC § 2518(b)(3) requires that the transferee has not accepted the interest of its benefits.
IRC § 2518-2(d)(1) provides: A qualified disclaimer cannot be made with respect to an interest in property if the disclaimant has accepted the interest or any of its benefits, expressly or impliedly, prior to making the disclaimer. Acts indicative of acceptance include using the property or the interest in property; accepting dividends, interest, or rents from the property; and directing others to act with respect to the property or interest in property. However, merely taking delivery of an instrument of title, without more, does not constitute acceptance.
IRC § 25-3(a)(1)(ii) provides: The disclaimer of all or an undivided portion of any separate interest in property may be a qualified disclaimer even if the disclaimant has another interest in the same property.
IRC § 25-3(c) provides: A disclaimer of a specific pecuniary amount out of a pecuniary or nonpecuniary bequest or gift which satisfies the other requirements of a qualified disclaimer under section 2518 (b) and the corresponding regulations is a qualified disclaimer provided that no income or other benefit of the disclaimed amount inures to the benefit of the disclaimant either prior to or subsequent to the disclaimer.
Rev. Rul. 2005-36 provides: A beneficiary's receipt of RMDs from an IRA constitutes acceptance of that portion of the corpus of such account, plus the income attributable to that amount. The beneficiary's acceptance, however, of these amounts does not preclude the beneficiary from making a qualified disclaimer with respect to all or a portion of the balance of the IRA.
The service ruled favorably regarding the spouse’s ability to disclaim the retirement accounts and postmortem automatic deposits of the RMDs into an account, and the transfer of the balance of this account to another does not constitute acceptance within the meaning of IRC § 2518. The IRS relied on Rev. Rul. 2005-36 which provides in part that acceptance of RMDs from an IRA does not preclude making a qualified disclaimer with respect to all or a portion of the balance of the IRA.
The Service determined the RMDs automatically deposited into the bank account after death and any interest accrued on those funds were accepted by the spouse and thus cannot be disclaimed.
This case is a reminder that even if RMDs are accepted by the beneficiary prior to a disclaimer, it does not prohibit such beneficiary from disclaiming the remainder of the account. This comes into play if an RMD is required to be taken before a decision has been made about whether a disclaimer will be executed.