Life and Death Planning for Retirement Benefits

224

Life and Death Planning for Retirement Benefits

If the beneficiary does disclaim part of the account, see Rev. Rul. 2005-36 for elaborate rules regarding how the “income” of the retirement plan must be apportioned between the portions disclaimed and not disclaimed. Taking a distribution would preclude a later disclaimer if the retirement benefit is not a collection of “severable” property. For example, if the plan in question is a defined benefit plan ( ¶ 8.3.04 ), and the death benefit is a life annuity of $100 per month, as soon as the beneficiary accepts the first $100 check, he has accepted the entire benefit, because there is no way to “sever” the annuity. C. Automatic deposit of benefits not acceptance. It is common for a participant to arrange his retirement plan so that periodic distributions are automatically deposited in his bank account. If the bank account is a joint account co-owned with the retirement plan beneficiary, the mere continuation of the automatic deposits after the participant’s death would not, in itself, constitute acceptance of the retirement plan. Since there has been no action by the beneficiary, it would not even constitute acceptance of the amounts deposited, unless the beneficiary actually withdraws from the automatically-deposited amounts. See PLR 2000-03023. At first it appears the deadline for disclaimers of retirement benefits is simply stated: nine months after the participant’s death. When stated with all its exceptions and wrinkles, however, the deadline is more complicated. A. Nine months after participant’s death (or beneficiary’s 21st birthday). § 2518(b)(2) states that a person’s qualified disclaimer must be delivered “not later than the date which is 9 months after the later of--(A) the day on which the transfer creating the interest in such person is made, or (B) the day on which such person attains age 21.” Normally, in the case of retirement plan death benefits, the date of transfer is the date of the participant’s death, so the deadline for a disclaimer is nine months after that date (or, if later, the beneficiary’s 21st birthday). Reg. § 25.2518-2(c)(3)(i) . The fact that the deadline for finalizing the identity of the Designated Beneficiary for minimum distribution purposes is September 30 of the year after the participant’s death ( ¶ 1.8.03 ) does NOT mean that the deadline for making a qualified disclaimer is extended to that date; the RMD rules have no effect on the deadline for a qualified disclaimer. If the deadline for delivering the disclaimer falls on a Saturday, Sunday, or legal holiday (see Reg. § 301.7503-1(b) for definition), the deadline is extended to the next day which is not a Saturday, Sunday, or legal holiday. Reg. § 25.2518-2(c)(2) . In rules borrowed from the deadline for filing tax returns, the IRS provides that “a timely mailing of a disclaimer” to the correct person ( ¶ 4.4.07 ) “is treated as a timely delivery.” Reg. § 25.2518-2(c)(2) . See Reg. § 301.7502-1(c)(1) , (2) , and (d) , for requirements of “timely mailing.” B. Is the starting point ever earlier than the date of death? A qualified disclaimer must be made within a certain time period “after the...date of the transfer creating the interest” being disclaimed. If a beneficiary acquires rights in the participant’s benefits earlier than the date of death we need to consider whether the time starts earlier. An irrevocable designation of Deadline for qualified disclaimer