13 May Who inherits this IRA after the beneficiary dies?

Q. My mother, 93, died on Sept. 1, 2020. She left in her will an IRA account with her three grandsons as beneficiaries. One grandson did not turn 18 until late December and we were advised by the financial institution that it would be better for the other two grandsons to wait until then to withdraw. My son, 47, was one of the beneficiaries and he died on Jan. 12, 2021 and he had not yet done anything with the IRA. A clause in mom’s will stating “the net proceeds of sale of house and other possessions to be divided among 5 children, or to such of them as shall survive me in equal shares per capita and not per stripes.” The financial institution says my son’s third will now be divided between the other two grandsons. Is this correct or should my son’s share go to his wife or children?

— Confused but willing to fight

A. We’re sorry to hear you’ve experienced so much loss.

The answer to your question is in the specifics.

Generally, IRAs are transferred by a decedent through a beneficiary designation form and not handled through a will, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

But if the IRA is paid to the estate and then the beneficiaries, it must be paid out to the beneficiaries within five years as opposed to a longer period, usually 10 years, if left to them directly, she said.

“With respect to a will clause which requires the beneficiary to survive the testator, the beneficiary needs to survive the testator’s death but does not need to be alive at the time the assets are distributed,” Romania said. “Should the beneficiary die before the assets are distributed, the assets will pass to the beneficiary’s estate and pursuant to the beneficiary’s last will and testament, if any, otherwise his heirs.”

If the beneficiary dies before the testator, then the testator’s will controls and it will pass to the beneficiaries as set forth in the testator’s will.

Notwithstanding all of this, the answer to your question is likely in the financial institution’s IRA plan documents, Romania said.

“If your son is the named beneficiary of one-third of your mother’s IRA and he survived her, then he would be entitled to open an inherited IRA with such one-third and name a beneficiary of such inherited IRA,” she said. “As he failed to do so before he died, his executor would open the inherited IRA.”

The financial institution’s IRA plan documents would dictate whether the inherited IRA’s beneficiary would be your son’s spouse or his estate, Romania said.

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This story was originally published on May 13, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.