April 1, 2016
A part of estate planning that is sometimes overlooked is the naming of beneficiaries for retirement accounts. What may seem like a trivial exercise can have damaging impact if neglected. Be sure to name beneficiaries of your retirement accounts. And be sure to name contingent beneficiaries in case your primary beneficiary dies before you.
In Private Letter Ruling 201612001 (released March 18, 2016), the IRS was asked to provide an opinion on the following situation: Husband died owning an IRA account. His spouse survived him. The primary named beneficiary (not the spouse) died before Husband. There was no contingent beneficiary named. As a result the Husband’s estate became the beneficiary of the retirement account. The Surviving Spouse then requested the IRS’s opinion on whether she could treat the IRA account as her own, thus potentially delaying the payment of income taxes on the account. In this case, the IRS stated that because the Surviving Spouse was both the executor and the sole heir of the estate, she could treat the IRA account as her own.