A series of recent IRS rulings shows how important it is to review carefully your IRA beneficiary designations. The rulings show that your will and other documents don’t matter. Only the beneficiary designation form on file with the IRS custodian or trustee matters to the IRS.
In the rulings, an IRA owner had IRAs at the firm that employed his financial advisor. The advisor changed firms. The IRA owner and his accounts went with him. The original IRAs designated trusts as the beneficiaries, and the trusts qualified as “look-through” trusts that allow the trusts to maximize tax deferral after inheriting the IRAs.
But when the forms were prepared to open IRAs at the new firm, the owner’s estate was listed as the beneficiary. He didn’t notice and signed the forms. After he passed away, the trustee asked a court to correct the mistake and designate the trusts as beneficiaries of the IRAs. The court agreed that the IRA owner clearly intended the trusts to be the beneficiaries and issued the order. The trustee then asked the IRS to rule that the trusts also would be the beneficiaries for tax purposes and the ages of the trust beneficiaries would be used to determine the required minimum distributions.
The IRS declined. The regulations make clear that the beneficiaries named in the IRA documents determine who is the beneficiary for tax purposes. Other evidence, including court orders, won’t change that. (Private Letter Rulings 201628004, 201628005, 201628006)
The rulings re-emphasize the importance of regularly reviewing your beneficiary designations for IRAs, 401(k)s, and other qualified retirement plans. Your will, stated intentions and other evidence won’t be able to change the beneficiary as far as the IRS is concerned.