The inheritance trap: how not to leave your heirs' interests dangling

Guidance for practitioners retained to assist with crucial decisions to be made by non-spouse beneficiaries of individual retirement arrangements. Distribution options available to a non-spouse beneficiary can be divided into 2 categories: 1. the owner of the IRA account was under the age of 70 at his death, or 2. the IRA owner was age 70 or older. In the first category, the named beneficiary generally may receive her interest in the IRA account in annual installments over a 5-year period. The general rule in the 2nd category is that an IRA owner who reaches age 70 must begin electing to receive his or her benefits over a period of time which is equal to his life expectancy or the joint life expectancy of the owner and the beneficiary, as determined by IRA Publication 590. Therefore, under these conditions, the importance of the designation of the beneficiary is shifted from the date of death to the date the owner's distribution method was determined.