Life and Death Planning for Retirement Benefits

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204 Life and Death Planning for Retirement Benefits
4.4.05 Effect of taking a distribution; partial disclaimers
Taking a distribution from an inherited retirement plan does not necessarily constitute
acceptance of the entire plan.
A. Taking RMD for year of death not acceptance of entire plan. The IRS has issued a safe-
harbor ruling that a beneficiary can receive and keep the required minimum distribution
RMD) from the decedent’s IRA for the year of the participant’s death A)) and
still disclaim all or part of the rest of such beneficiary’s interest in the decedent’s IRA. Rev.
Rul. 2005-36, 2005-26 IRB 1368. There is one minor limitation: By taking the RMD, the
beneficiary is deemed to have accepted not only the RMD itself but also the “income” that
the plan earned on that “pecuniary amount” (as the IRS calls it) between the date of death
and the date the RMD is distributed to the beneficiary. See the Ruling for how to compute
this income.
B. Taking other distributions from the plan. If the beneficiary takes out more than just the
year-of-death RMD (and income thereon), such excess distribution is not within the safe
harbor of Rev. Rul. 2005-36. However, he has still not necessarily accepted the entire plan;
the Code permits a beneficiary to disclaim part of an inheritance while accepting other parts
of it. A person may disclaim “any interest” in property. Reg. is
entirely devoted to disclaimers of “less than an entire interest.” Several types of partial
disclaimers are recognized, including a disclaimer relating to “severable property.”
Severable property is “property which can be divided into separate parts each of which,
after severance, maintains a complete and independent existence. For example, a legatee of shares
of corporate stock may accept some shares of the stock and make a qualified disclaimer of the
remaining shares.” Reg. When a beneficiary inherits an estate, or a joint
securities account, the beneficiary has inherited in effect a collection of severable property. The
beneficiary can take some assets from the inherited collection and disclaim others. See Reg.
Example (17).
The IRS has in rulings allowed beneficiaries to accept some assets from an estate, trust, or
joint investment account and later disclaim other assets. Although they did not involve retirement
plan accounts, PLRs 8113061, 8619002, 9036028, 9214022, and 2005-03024 support the
conclusion that a beneficiary may take a distribution from a typical self-directed IRA (which is,
like an estate or a joint investment account, a collection of severable property) without being
deemed to have accepted the entire account and therefore without being precluded from
disclaiming all or part of the rest of the account. (The only exception would be if the distributions
taken could somehow be construed as representing the “income” of the entire account; see
) Rev. Rul. 2005-36 also supports this conclusion, in that it created a safe harbor for one
type of partial acceptance (taking the RMD for the year of death), and did not rule out the
possibility of a qualified disclaimer even if other distributions had been taken.
If the beneficiary thinks of this issue before he takes a distribution, he can eliminate the
concerns by either executing a partial disclaimer before he takes the distribution, or sending in to
the IRA provider, along with the request for a distribution, a statement that the beneficiary is not
accepting the entire account, just the amount of this distribution.