Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

deferral of income taxes via a spousal rollover, on the one hand, and naming a credit shelter trust as beneficiary, on the other hand, to take advantage of his unified credit. Each choice has its merits and a clear “winner” may not be apparent during the planning phase. The participant may decide to make the benefits payable to the spouse as primary beneficiary, because his main goal is to provide for the spouse’s financial security, but provide that, if the spouse disclaims the benefits, the benefits will pass to the credit shelter trust. If funding the credit shelter trust appears to be the more attractive alternative at the time of the participant’s death, the spouse can activate the credit shelter plan by disclaiming the benefits, which will then pass to the credit shelter trust as contingent beneficiary. PLR 9320015 illustrates this type of planning. See also PLR 2005-22012 (benefits payable to spouse as primary beneficiary, with marital trust as contingent beneficiary if spouse disclaimed, and family trust as second contingent beneficiary if spouse also disclaimed all her interests in the marital trust, and participant’s children as third contingent beneficiaries if spouse also disclaimed all her interests in the family trust); PLR 2005-21033 is identical. While it is wise to consider the possibility of disclaimers, the apparent flexibility of disclaimers can tempt planners to rely excessively on future disclaimers as a way of carrying out the estate plan. One justification offered for this approach is that it avoids the need to spend time analyzing the choices at the planning stage. Thus, professional fees are lower—at the planning stage. The estate plan relies on the fiduciaries and beneficiaries to make the decisions later, after the participant’s death, when a more informed choice can be made. Before making important estate planning goals dependent on prospective disclaimers by beneficiaries or fiduciaries, or whenever considering the impact of disclaimers on an estate plan being drafted, use this checklist for issues to be reviewed. 1. One requirement of a qualified disclaimer is that the disclaimant must not have “accepted” the disclaimed property. See ¶ 4.4.04 . If the surviving spouse is the sole beneficiary, and is considering a disclaimer, no one can exercise investment authority over the account pending her decision, unless the benefits are in a trusteed plan under which the trustee can exercise such authority. Assets in a custodial or self-directed plan would essentially be frozen, since the participant’s powers of attorney or grants of investment authority would expire at his death and the spouse could not grant new authority without accepting the account. 2. Disclaimers generally have an inexorable deadline of nine months after the date of death. ¶ 4.4.06 . Thus, an estate plan that depends on disclaimers requires rapid action post mortem. 3. No matter how apparently cooperative and disclaimer-friendly the proposed disclaimant may have been in the planning stage, he could have a change of heart and not sign a disclaimer when the time comes. A. Consider risks and drawbacks of disclaimers. Disclaimers are not a simple solution:

4. If estate taxes will be due on the disclaimed property, who will pay them? The decedent’s will may contain a tax payment clause that does not operate correctly if there is a disclaimer.