Thank you, @Hal_Al.
However, poster does ask:
Q. If the Inherited IRAs go to the contingent beneficiaries or estate, that would we welcomed as long as the sisters aren't taxed on the Inherited IRAs as a distribution or as ordinary income. Would they be?
A. Yes, either the estate will pay the income tax on ordinary income or the heirs that receive the distribution will pay the income tax. If somehow, the sisters are able to actually inherit the IRA, as a legal beneficiary (as opposed to taking a distribution from it thru the estate), then they will have 10 years to take distributions. So they could either spread the tax over 10 years or postpone taxation for up to 10 years.
The sisters (not the estate) have inherited the IRAs. The beneficiary designation was "To my descendants who survive me, per stirpes." The grandchildren are at tax brackets which would preserve more of the Grandfather's IRAs if they receive them as Inherited IRAs and take the distributions themselves over the 10 yr period (vs the sisters' tax brackets, possibly even with the 10 yr horizon).
It's clear if this is considered a "qualified disclaimer", the Inherited IRAs pass to the grandchildren without tax implications to the sisters. The main question is whether there would be tax implications to the sisters if it is considered a non-qualified disclaimer since the grandchildren are beneficiaries by the "per stirpes" designation. Would there be?
Additionally, as you or others have said, it seems some of this is as much a legal question as a tax question. They should definitely get advice from their estate planning attorney - or an estate planning or tax attorney with specific experience in the area of disclaimers.
