Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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beneficiary prior to the participant’s death could raise this problem if the beneficiary then attempted to disclaim the benefits. However, irrevocable beneficiary designations are rare (nonexistent?) with qualified plans and IRAs. A more realistic concern is whether the Federal law that gives married persons certain rights in each other’s retirement benefits causes the surviving spouse to have acquired rights in the participant’s benefits more than nine months before the date of death; see ¶ 3.4.07 . § 2518(b)(2) requires that the disclaimer be “received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates.” Reg. § 25.2518-2(b)(2) adds one more candidate, “the person in possession of such property,” but provides no further elucidation and no examples. In the case of retirement benefits, the disclaimer cannot be delivered to “the transferor” (the participant) because he is dead, so that leaves “his legal representative” ( i.e., the executor or administrator of the participant’s estate), “the holder of the legal title to the property,” and “the person in possession.” The legal title to retirement benefits is generally held by the trustee (of a QRP or individual retirement trust) or custodian (of an individual retirement account or 403(b) mutual fund account), who also has “possession” of the retirement plan’s assets. The “or” in the Code and Regulation makes it appear that § 2518(b)(2) would be satisfied if the disclaimer is delivered either to the executor of the participant’s estate or to the trustee or custodian of the retirement plan, i.e., that you have a choice regarding where to send the disclaimer. However, see Reg. § 25.2518-2(a)(3) and § 25.2518-2(c)(2) , both of which speak of delivery to “the person” described in Reg. § 25.2518-2(b)(2) , as though in the case of any particular asset there is only one correct recipient of the disclaimer. Regardless of which destination would satisfy § 2518(b)(2) , it is normally also necessary to comply with applicable state law, which may have different requirements about where the disclaimer must be delivered. When in doubt, send to “all of the above.” For what it’s worth, in PLR 9016026 a qualified disclaimer of QRP benefits was filed with the employer and the plan trustee; in PLR 9226058, a qualified disclaimer of an IRA was filed with the Probate Court. Other letter rulings discussing qualified disclaimers of retirement benefits don’t say where the disclaimers were filed. When a beneficiary disclaims inherited benefits, the benefits will generally pass to the person or entity who would have been entitled to the benefits if the disclaimant had predeceased the participant. To whom those benefits pass as a result of the disclaimer, and how they pass to such person, are very important questions. If the benefits do not pass to the right type of person (see “A” below) in the right way (see “B”), the disclaimer is not qualified. Even aside from the tax consequences, the disclaimant also normally cares about who gets the benefits as a result of the disclaimer; see “C.” A. Property must pass to “someone other than” disclaimant. § 2518(b)(4) requires that the property must pass, as a result of the disclaimer, either to the transferor’s ( i.e., the participant’s) surviving spouse or to someone other than the disclaimant. Passing the Who gets the disclaimed benefits and how do they get them? To whom is the disclaimer delivered?