Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

A. Exception for certain fiduciary actions. This ¶ 4.4.04 (A) discusses whether a person who is both a beneficiary and a fiduciary of the inherited property can disclaim an interest as beneficiary despite having taken actions with respect to the property in his capacity as fiduciary. For disclaimers by a fiduciary in his capacity as fiduciary see ¶ 4.4.08 (B) (last paragraph), ¶ 4.4.11 (B), (C), and ¶ 4.4.12 (B). Actions taken by a person who is both a beneficiary and a fiduciary “in the exercise of fiduciary powers to preserve or maintain the disclaimed property” do not constitute acceptance as beneficiary. Reg. § 25.2518-2(d)(2) . Shirley Example: Shirley dies. Her will leaves her house to her three children A, B, and C, and names C as executor. To fulfill his duties as executor under applicable state law, C arranges for insurance, security, and maintenance for the house. These actions taken as executor would not preclude his disclaiming his interest as beneficiary. This exception can lead practitioners astray. This is a very limited exception for which the IRS provides no examples in the regulations. The only fiduciary powers blessed are “to preserve or maintain the disclaimed property.” Any exercise of discretionary powers to direct the enjoyment of the property, even if exercised in a fiduciary capacity, would preclude a qualified disclaimer of the property by the individual in his personal capacity, unless the exercise of discretion is limited by an ascertainable standard. ¶ 4.4.08 (B). B. Titling of account not determinative. The fact that a retirement plan account is retitled in the name of the beneficiary after the death of the participant does not in and of itself mean the beneficiary has accepted the account. See Reg. § 25.2518-2(d)(4) , Example (6); PLR 8817061 (a surviving spouse’s filing an election to take a statutory share of the decedent’s estate did not constitute acceptance of the statutory share; the spouse could disclaim part of the statutory share); and PLR 9214022 ( ¶ 4.4.05 (B)). Rachel Example: Rachel dies, leaving her IRA (at Brokerage Firm X) to her husband Isaac. Isaac informs Brokerage Firm X of Rachel’s death. Firm X retitles the account “Rachel, deceased, IRA, for the benefit of Isaac, beneficiary.” Firm X sends Isaac paperwork explaining the account agreement, its fees, and his rights regarding rollover and investments. If this is all that happens, Isaac has not accepted the IRA. But: If Isaac gives Firm X any instructions regarding the account, such as buying or selling investments, he has accepted the account (or at least those investments; see above). If he takes a withdrawal from the account, see ¶ 4.4.05 . If he names a successor beneficiary for his interest, see “C.” C. Naming a successor beneficiary. A beneficiary’s designating a successor beneficiary for his interest in the account is probably not “acceptance,” unless the beneficiary dies while that designation is in effect ( i.e., before he disclaims), in which case see ¶ 4.4.12 (A). This conclusion is reached by analogy from the way the regulations deal with a disclaimer by the holder of a power of appointment: “The exercise of a power of appointment to any extent by the donee of the power is an acceptance of its benefits,” says Reg. § 25.2518- 2(d)(1) , but this apparently does not include an executory exercise: See Reg. § 25.2518- 2(d)(4) , Example (7), in which B has a testamentary power of appointment under A’s trust, and signs a will which would exercise the power, but then makes a qualified disclaimer of the power before he dies (so the “exercise” is never activated).