Need to Know: The Importance of Beneficiary Designations

February 27, 2019



You may know that updating your beneficiary information is an important part of estate and financial planning, but you may be interested to know that failing to do so can have unintended financial and tax consequences. This is especially true if someone names a trust as the beneficiary of an IRA (individual retirement account) rather than an individual.


This January, a Private Letter Ruling proved this important point. This particular PLR dealt with a determining if an individual had acquired the IRA of her deceased spouse directly from him, rather than his estate or trust, and the tax implications of the rollover of these assets.


The Internal Revenue Service ruled that the spouse received an IRA from her deceased spouse and not from the spouse’s estate, meaning she was able to roll over the IRA into IRAs established in her own name and that she wasn’t required to include the rolled-over distribution in her gross income in the year of distribution.


Renunciation and Disclaimer

The decedent was survived by his spouse (taxpayer), along with a son and two grandchildren. His only IRA named his trust as the sole beneficiary with no contingent beneficiary. Within nine months of the decedent’s death, the trustee of the trust signed a “Renunciation and Qualified Disclaimer” of any interest in the IRA. Also within nine months after the decedent’s death, the son and both grandchildren executed “Renunciation and Qualified Disclaimers” of any interest they may have in the IRA under the decedent’s estate. 


Taxpayer’s Request

The taxpayer requested the following rulings:

  1. The taxpayer, as the decedent’s spouse, would be treated as having acquired the IRA directly from the decedent, and not from the decedent’s estate or trust.

  2. The taxpayer is eligible to roll over the decedent’s IRA to one or more IRAs established and maintained in her own name in accordance with Internal Revenue Code Section 408(d)(3)(A)(i), provided that the rollover occurs no later than 60 days after the proceeds of the decedent’s IRA are distributed.

  3. The taxpayer wouldn’t be required to include the amount distributed from the decedent’s IRA in her gross income for federal income tax purposes for the calendar year in which the distribution and rollover occur. 

IRC Section 408(d)