In our previous blogs to date, we have discussed the possible passage of The Secure Act. The Setting Every Community Up For Retirement Act, or the SECURE Act of 2019, continues to have the potential to help millions of Americans achieve their retirement savings goals. With the passage of this new law combined with the recent passing of a spouse, however, what do you need to know about potentially disclaiming an IRA?

Let us share a few facts with you here on our blog. We want to give you as much information as we can but, as we always recommend, for planning considerations like these there is never a wrong time to discuss your unique circumstances with your experienced estate planning attorney.

An IRA is an Individual Retirement Account.  If an owner of an IRA died in 2019, the beneficiary of the IRA may take advantage of the previous income tax laws governing IRA distributions.  The Secure Act only applies to beneficiaries who inherit an IRA when the owner of the IRA dies after January 1, 2020. It is important to understand that a spouse who would otherwise inherit this year an IRA from an owner who died in 2019 can take advantage of the prior IRA stretch laws or the spouse can  disclaim the right to receive the proceeds of the IRA within 9 months of the date of death of the IRA owner. 

This is important to consider because a disclaimer could result in the IRA proceeds passing to or for the benefit of descendants under the prior rules which allow for the beneficiaries to “stretch” the IRA required minimum distributions over the life expectancy of that beneficiary. If this disclaimer is not timely elected, the surviving spouse’s descendants may have to withdraw the unused IRA proceeds within 10 years after the death of the spouse of the of the IRA. 

There are a few more considerations for you to be aware of. We want you to know that disclaimer planning may only apply if the ultimate beneficiary of the IRA is an individual who is a lineal descendent of the initial IRA beneficiary.  Further, the beneficiary designations cannot be changed after the death of the plan participant. 

In order to be valid, the disclaimer must be irrevocable and unqualified, it must be in writing and delivered to the transferor within 9 months after the death of the IRA owner, the disclaimant must not have accepted the interest disclaimed or any of its benefits; and the interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.

We know this topic and this blog may raise many more questions than it answers. Your estate planning going forward may need to change to ensure that you are able to maximize the benefits available to you and your loved ones. We encourage you not to wait to ask your questions and schedule a meeting with our legal team.