Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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The deadline for this type of disclaimer is nine months after the death of the participant (not nine months after the subsequent death of the primary beneficiary).

Here are issues to consider with respect to such disclaimers:

A. Who is the successor beneficiary? When a beneficiary dies after becoming entitled to the benefits, the person who succeeds to the deceased beneficiary’s interest is called the successor beneficiary. ¶ 1.5.12 . If the successor beneficiary is not the deceased beneficiary’s own estate there are two potential obstacles to a disclaimer by the beneficiary’s executor: First, if the beneficiary himself had designated a successor beneficiary ( ¶ 1.5.12 (A)), then a qualified disclaimer by the beneficiary’s executor is probably not possible. The beneficiary’s death would cause his “executory” designation of a successor beneficiary ( ¶ 4.4.04 (C)) to be considered “executed,” and this would be deemed acceptance by the beneficiary, precluding disclaimer. Estate of Engelman, 121 T.C. 54 (2003). Second, if there is a successor beneficiary (other than the participant’s own estate) who has been designated by the participant ( ¶ 1.5.12 (D)), one case held that the successor beneficiary is automatically entitled to ownership of the benefits upon the death of the original beneficiary, so the estate of the original beneficiary had no standing to disclaim. Nickel v. Estate of Estes, 122 F. 3d 294 (5th Cir. 1997). Though this case has been criticized (and might not be followed by other courts), if there is a designated successor beneficiary, that successor beneficiary is likely to claim the benefits, citing this case. B. If the fiduciary is also a beneficiary. When the beneficiary’s executor disclaims benefits that are payable (as a result of the beneficiary’s death) to the now-deceased beneficiary’s estate, the interest he is disclaiming is the deceased beneficiary’s interest in those benefits. Thus, the executor of the now-deceased original beneficiary can make such a disclaimer on behalf of the deceased beneficiary even if the executor in his individual capacity (1) is a beneficiary of the original beneficiary’s estate and (2) will receive the benefits personally as a result of the estate’s disclaimer. Such a disclaimer appears to violate the rule that the disclaimed assets must pass to someone other than the disclaimant ( ¶ 4.4.08 (A)), since the asset is beneficially owned by the same individual both before and as a result of the disclaimer. However, it does not violate that rule, because when he disclaims in his capacity as executor of someone’s estate he is not deemed to be disclaiming on behalf of himself individually as beneficiary of that estate. See Dancy, 872 F. 2d 84 (4th Cir. 1989), in which a son, as executor of his mother’s estate (of which he was also the sole beneficiary), was allowed, on her behalf, to make a qualified disclaimer of her interest as surviving joint owner of certain property she held with her husband. This disclaimer was allowed even though the son was also the beneficiary of the husband’s estate which would receive the property as a result of the disclaimer; and PLRs 9015017 and 8749041 (involving similar situations).

Building disclaimers into the estate plan: Checklist

It is wise, at the planning stage, to anticipate the possibility of disclaimers. For example, the participant may be trying to choose between naming his spouse as beneficiary, to achieve