Options for When an IRA Has No Beneficiaries
An Individual Retirement Account is a personal retirement savings program designed to give the IRA owner tax-deferred growth so assets grow more efficiently. The goal is to save enough to supplement retirement income after age 59 1/2. While IRA custodians request a beneficiary designation at the time the account is established, there is no guarantee a beneficiary gets named. Upon the death of the owner, the problem becomes one for the estate trustee in many cases.
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Surviving Spouse
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Most states require that a surviving spouse is the 100 percent rightful beneficiary to IRA assets. In fact, in states where this requirement exists, a spouse must sign a waive releasing rights to IRA assets left to other beneficiaries. If no beneficiary is listed when the IRA owner dies, the assets become the surviving spouse in states following this requirement. The spouse has the option of taking a lump sum distribution, distributions over five years, continue the IRA as if her own or roll the IRA into a beneficiary IRA. If the state does not require IRA assets bequeathed to the spouse automatically, the assets are placed into the owner's estate.
Probate
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When no beneficiary is named and no trust exists, the assets are sent into probate. Having the IRA go into probate defeats one of the benefits of an IRA, but the point is moot after the IRA owner dies. The IRA is liquidated and distributed according to the trustee's determinations of asset splitting among the heirs. The IRA is included for estate transfer taxes and the entire IRA is liquidated, creating a income tax liability to the beneficiaries who no longer have the option of spreading distributions.
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Trust Designations
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It may be possible that the IRA owner established a family trust, but never named beneficiaries on the IRA itself. If the trust defines who is to get the assets of the IRA, then the IRA will avoid probate issues. This does not prevent the taxable liquidation of the assets. Beneficiaries are given the proceeds without the option to continue the IRA.
Considerations
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Naming beneficiaries on an IRA takes nothing more than completing a form. Owners can change beneficiaries at any time; it is a revocable decision. Listing natural persons as beneficiaries provides the most options including rolling assets into a beneficiary IRA to stretch distributions over time. IRA custodians allow primary and contingent beneficiary designations, providing second options if the primary beneficiaries pass away before the IRA owner.
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