Money Matters

Controlling your IRA from the grave

June 29, 2013 

Q. I have a rather substantial IRA and have named my husband as the primary beneficiary with our three grown children as contingent beneficiaries. A few years ago, a very good friend of ours died, and his widow inherited his substantial IRA. We helped her with a lot of the financial issues and know that she made their four children beneficiaries of what became her own IRA. She is now planning to marry a man she’s known for a very short time. He’s much younger than she and has two children of his own. At lunch the other day, she told me that once married she planned to name her new husband as primary beneficiary and her four children as contingent beneficiaries. This upset me greatly as I view this as disinheriting our deceased friend’s children. If she predeceases her new husband, what’s to prevent him from naming his children as primary beneficiaries? What if he just spends it all? I trust my husband not to disinherit our children, but I’m sure our friend never thought his wife would do what she is planning on doing! Are there ways to rule from the grave and make sure what you want to happen with your finances happens?

A good estate planning attorney can help you rule from the grave. It sounds like your friend may be in lust and not thinking clearly. Maybe you could coax her to visit with an attorney, not only about estate planning but possibly a pre-nuptial agreement.

You are correct that if her new husband should survive her he will have the ability to change the beneficiaries of the IRA from her children to someone else. You are also correct that once he inherits the IRA from his spouse, he can also take distributions as he wishes, perhaps depleting it before he dies.

The simplest way for your husband to have the advantage of being able to stretch the assets in your IRA upon your death over his lifetime, and then upon his death the lifetimes of your children, is to do exactly what you have done. Alternatively, you could name a trust as your IRA beneficiary. You must be careful when doing so, and make sure you work with an attorney who is an expert in this area. There are numerous ways to get tripped up and wind up with unintended results when naming a non-individual as a beneficiary of an IRA.

Only individuals are considered designated beneficiaries by the IRS for the purposes of stretching the IRA over their life times. If you name a non-individual such as your estate or a charity, the IRS treats the IRA as having no beneficiary. When this happens, the entire IRA must be distributed within five years of the IRA owner’s death if he or she was younger than 70-1/2, or if older than 70-1/2, the IRA must be distributed over the remaining life expectancy of the deceased owner. You may not provide the best stretch options if you name a trust that is not what is considered a conduit trust. A conduit trust contains wording that specifies that the amount distributed as required minimum distributions from the trust will go to the trust beneficiaries. You will want to discuss a stand-alone trust called an IRA Beneficiary Trust and a Qualified Terminable Interest Property Trust when you meet with your attorney.

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at or P.O. Box 97128, Raleigh, NC 27624

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service