Life and Death Planning for Retirement Benefits

Chapter 6: Leaving Retirement Benefits in Trust

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include this sentence, and inclusion may avoid the necessity of argument with possible future plan administrators and auditing IRS agents who may not be familiar with estate planning. See Form 4.1, Appendix B . (Prior to revision of the minimum distribution regulations in 2001–2002, the IRS trust rules required the trust to be irrevocable as of the participant’s RBD. That rule has been abolished.) A trustee’s power, after the participant’s death, to amend administrative provisions of the trust should not be considered a power to “revoke.” However, there is no authority or IRS guidance on this point. Unfortunately, it is not clear what the IRS is driving at with Rule 2. The IRS has never given an example of a trust that does not become irrevocable at the participant’s death. Perhaps the regulation-writers are thinking of a situation where someone other than the participant has a power to “revoke” the trust after the participant’s death, as in some community property trusts. “The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the employee’s benefit” must be “identifiable within the meaning of A-1 of this section from the trust instrument.” Reg. §1.401(a)(9)-4, A-5(b)(3). The entirety of what “A-1 of this section” provides on the meaning of the word “identifiable” is the following: “A designated beneficiary need not be specified by name in the plan or by the employee to the plan...so long as the individual who is to be the beneficiary is identifiable under the plan. The members of a class of beneficiaries capable of expansion or contraction will be treated as being identifiable if it is possible to identify the class member with the shortest life expectancy.” Reg. § 1.401(a)(9)-4 , A-1. For the effect of a power of appointment on the question of whether there are unidentifiable beneficiaries, see ¶ 6.3.11 . A. Must be possible to identify the oldest trust beneficiary. One meaning of this rule is that it must be possible to determine who is the oldest person (see “B,” below) who could ever possibly be a beneficiary of the trust, because that is the person whose life expectancy is used as the ADP after the participant’s death. Reg. § 1.401(a)(9)-4 , A-5(c), § 1.401(a)(9)- 5 , A-7(a)(1). Thus, if the trust beneficiaries are “all my issue living from time to time,” and at least one such issue is living at the participant’s death, the members of that class of potential beneficiaries are considered “identifiable,” even though the class is not closed as of the applicable date, because no person with a shorter life expectancy can be added later. The oldest member of the class can be determined with certainty, because the participant’s issue who are born after his death must be younger than the oldest issue of the participant who is living at his death. Reg. § 1.401(a)(9)-4 , A- 1. Actually, there is theoretically a problem even with this common provision. If people who are issue by virtue of adoption are to be included, there is a potential for violating the rule. After the participant’s death, one of his issue could adopt someone who was born earlier than the person who was the oldest beneficiary of the trust when the participant died. It is not known whether the IRS would ever raise this “issue,” but to avoid the problem the trust could provide that older Rule 3: Beneficiaries must be identifiable