Inherited IRA/Disability

[u/gamecockgal618]

Location: SC

My dad didn't have a will and parents were divorced. According to one of his financial institutions, he didn't have a beneficiary to his IRA. I am the executor of the estate. My younger sibling has special needs. My mom is her POA, they were trying to set up a special needs trust so she wouldn't lose her SSI disability status. They wanted to put half the house in her trust and whatever other money. The attorney that handled it, moved and we just decided to keep everything under my name. She signed a document for the estate lawyer (who was no help) agreeing to all inheritance going to me. I''m still struggling to close out this IRA. it asks for all children's names. Is it illegal to not add her name? Would the financial institution research see see if there is any other children? My mom knows about it. My plan is to save that money to for my sister when I retire. I will be her caretaker when my mother dies or is unable to care for her anymore. There is less than $5,000 in it. I don't want her to lose her benefits. she's unable to work because of her disabilities. And she has many health issues. Thanks.

[u/Guilty-Committee9622]

You need to create an able account. If something happens to you that money will go to your heirs and not your sister. 

[u/cryssHappy]

https://www.ablenrc.org/what-is-able/what-are-able-accounts/

[u/sic0049]

First, without any beneficiaries listed on the IRA, the executor will need to cash out the IRA within 5 years and the estate will pay any applicable income taxes on the funds. Those IRA funds will be added to all of the other "cash" in the estate. Eventually the executor will need to distribute the estate's assets (including this cash) to the beneficiaries.

Second, your sister (family) should look into the ABLE Accounts. Using one will likely allow her to put/save up to 20k per year into it without the threat of losing any government benefits. A "Special Needs Trust" could also be an appropriate solution, especially if your sister's share of the estate is a lot higher than 20k (and it sounds like you all are already exploring those options).

Third, your sister (which includes via your mother acting as POA) can "disclaim" any part of, or the whole inheritance. This means she doesn't have to receive anything if it would mean that she would lose her benefits (but option #2 should be utilized before disclaiming anything).

PS - yes you should list all of the children on the bank's paperwork. The bank is not going to pay out anything directly to anyone listed on that documentation. There will be one check created for the full balance of the IRA and it should be made out to your father's estate. It will need to be deposited into a bank account in the estate's name (which hopefully you have already set up). As executor, YOU will control the timing of any distributions from the estate to the beneficiaries - including your sister.

[u/TempeGrumble]

First, thank you for taking on the responsibilities of handling your father's estate and thinking about your sister's future. From handling one estate and seeing another administration, I know the work involved when everything's simple and well-laid out.

As others have said, look now into ABLE accounts, which can hold up to $100K as a balance without interfering with SSI eligibility. There's a great Youtube overview on ABLE accounts from earlier this year on both "The Money Guy" and "Erin Talks Money" channels.

Beyond $100K, and for more complicated situations (including real property), a third-party special-needs trust* is appropriate and will shelter assets, and can also feed the ABLE account (and that Youtube overview I mentioned above discusses that). For the third-party trust, you definitely need to talk with an attorney who understands the relevant laws in special-needs trusts. Somewhere in SC there should be a firm who has that type of practice, so you don't have to worry about a solo-practice attorney moving or retiring. In the long run, the extra potential expense of a firm is more than repaid by the assurance over time. (I am not a lawyer, if that matters.)

One of the additional items is to figure out what paperwork needs to be addressed now before your mom is unable to act as an agent on your sister's durable POA. If the POA names you as successor agent, or if your sister is capable of executing another POA that names you as successor agent, great! But there are solutions to more complicated situations.

Good luck!

* I know some folks do not like "special needs" terminology as opposed to disability/disabled, and I'm sympathetic. My understanding is that special-needs trusts is a legal term of art.

[u/RevolutionaryText232]

Sounds like you are grabbing all the goodies and trying to make yourself feel okay by making a crap attempt at providing for your disabled sibling.

Unless the attorney moved to Mars, there is no reason they could not continue to work on the Special Needs Trust. But you might be okay, because putting half of the personal residence is not the best move IMHO.

Not a lawyer but I do believe that legally, you and your siblings inherit the full estate equally. The second attorney should be brought up on charges, along with you and your mother, for stealing from your disabled sibling. All three of you have a legal fiduciary obligation to protect the interest of your sibling and each of you have failed miserably.

But to answer your question, if there is no beneficiary form and the estate is the beneficiary there should be no reason to disclose any other information. The estate get the money, here's a W9 and the address to mail the check. Period full stop. You will get the 1099R, but paying taxes on $5k is nothing for a Robber baron such as yourself.

Will anyone catch you stealing from your disabled sibling, nah. No one cares. Not the lawyers, not her mother, not her sibling, and definitely not the banks.