Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Trust beneficiaries can disclaim interests or powers they have under the trust, to help the trust qualify as a “see-through trust” under the IRS’s minimum distribution trust rules. See ¶ 6.3.03 (B). B. Salvaging spousal rollover. If the participant dies having named the “wrong” beneficiary, it may be possible to get the benefits to the spouse (so she can roll them over) by having the named beneficiary disclaim the benefits. This strategy works if, as a result of the disclaimer, the benefits pass outright to the spouse either as contingent beneficiary, or as the default beneficiary under the plan ( ¶ 1.7.02 ). If the default beneficiary under the plan is the participant’s estate, this strategy still works if (as a result of the disclaimer) the benefits will pass (through the estate) outright to the spouse as residuary beneficiary under the participant’s will or by intestacy. See ¶ 3.2.09 . In PLR 9045050, the participant named a trust as his beneficiary. The spouse was a trustee of the trust. Upon the participant’s death, the spouse, as trustee, made a qualified disclaimer of the benefits. As a result of the disclaimer, the benefits passed to the spouse outright rather than to the trust, and she rolled them over. PLR 1999-13048 (see ¶ 3.2.09 ) was similar. In PLR 9450041, benefits were redirected from a marital trust to the spouse via a chain of qualified and nonqualified disclaimers; the rollover was allowed. In PLR 2005-05030, a participant died without having named a beneficiary for his retirement plans. The benefits therefore became payable to his estate, which in turn was left to “Trust #2.” The beneficiaries of Trust #2 were the participant’s spouse, issue, sister, sister’s issue, sister-in-law, and sister-in-law’s issue. Qualified disclaimers were filed by the spouse, and all the then-living issue (two daughters and two grandchildren), and by the sister and sister -in-law and their then-living issue (seven nieces and nephews). As a result of these disclaimers, the trust passed to the surviving spouse under applicable state law, and the IRS approved the spousal rollover. C. Disclaimer by participant’s estate. When retirement benefits are payable to the participant’s own estate, the IRS has ruled that the participant’s executor may not disclaim the benefits because the participant had “accepted” his own retirement benefits ( ¶ 4.4.04 ). PLR 9437042. If the beneficiary of a retirement plan dies after becoming entitled to the benefits, the beneficiary’s executor generally can disclaim the benefits on the beneficiary’s behalf if permitted by state law. This approach is often useful when a husband and wife die within a short time of each other, and the first spouse to die named the surviving spouse as primary beneficiary and their children (or a see-through trust for their children) as contingent beneficiary. The executor of the now-deceased surviving spouse disclaims the benefits (and any interests granted to the now- deceased surviving spouse under any trust named as contingent beneficiary) on behalf of the now- deceased surviving spouse, allowing the benefits to flow directly to the next generation (or to the trust for the next generation). As a result of the disclaimer, the participant’s original “contingent beneficiary” becomes the “primary beneficiary,” which often produces better results under the minimum distribution rules. See PLR 2000-13041 for an example. Double deaths: Disclaimer by beneficiary’s estate