You might want to revise your beneficiary designation as a result of temporary regulations issued by the IRS in 2001. Under those rules, your beneficiary won’t be designated until December 31 of the year after your death. That may give your survivors more flexibility, if a thoughtful plan is in place. Suppose, for example, you name your spouse as the primary beneficiary of the IRA. At your death, your spouse can claim the inherited IRA as her own and designate your children as the beneficiaries.
On the other hand, suppose that your spouse has sufficient wealth from other sources at the time of your death so she doesn’t need your IRA. If you have named your children as contingent beneficiaries, she can disclaim in their favor, so they’ll inherit the IRA. This plan has two advantages:
Your children will have longer life expectancies than your surviving spouse. Therefore, they can stretch out required withdrawals over a longer time period and extend the IRA’s tax deferral.
Disclaiming the IRA will keep that account from being in your surviving spouse’s estate and might save estate tax.
Thus, naming both a primary and a contingent beneficiary will provide your heirs with more flexibility. If your children are minors, you should designate a trust as primary or contingent IRA beneficiary, and name your children as beneficiaries of that trust.
