Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

expectancy payout on $200,000 would not be a major economic catastrophe, whereas dividing up his IRA now into separate IRAs for the charity and the children would create an annoyance and extra chores that Lonnie does not want. He decides to take his chances. E. If the spouse is the only noncharitable beneficiary. The concern about multiple beneficiaries does not arise if the only beneficiaries are the participant’s spouse and one or more charities, if the spouse in fact survives the participant , because the spouse does not need to take an installment payout of the benefits over her life expectancy in order to defer income taxes; she can simply roll over her share of the benefits to her own retirement plan. See ¶ 3.2 . However, even when the spouse is named as the sole noncharitable primary beneficiary, consider the possibility of the spouse’s disclaimer, simultaneous death, or predeceasing the participant if the contingent beneficiary in that case would be another individual, because in that case you are right back in the situation of having both individual and nonindividual beneficiaries. Another way to leave part of the benefits to charity is to name the charity as beneficiary of a pecuniary (fixed-dollar amount) portion of the account, with the balance (residue) going to individual beneficiaries. Regarding whether payment of a pecuniary gift to the charity can fulfill the RMD requirement for all beneficiaries of the account, see ¶ 1.7.06 (A) (year-of-death RMD) and ¶ 1.7.06 (B) (later years). According to anecdotal evidence, some IRA providers will not accept pecuniary gifts in a beneficiary designation form. Assuming the IRA provider will accept it, the pecuniary gift presents some of the same problems as leaving benefits to charitable and individual beneficiaries in fractional shares (see ¶ 7.2.02 ), and some additional problems: A. Pecuniary gift may not qualify as a “separate account.” Under one approach to funding a pecuniary gift, the IRA provider would create two shares as of the date of death, one with $100,000 and the other containing the rest of the account’s assets. Then both shares would share pro rata in gains and losses occurring after the date of death. This treatment could be required by the beneficiary designation form, or (if the beneficiary designation form does not address this question) this treatment might be required as part of the IRA provider’s standard procedures. On the other hand, the beneficiary designation form, or the IRA provider’s documents, might indicate that the charity is to receive a flat $100,000, regardless of what appreciation or depreciation occurs in the IRA after the date of death. The planner needs to determine what the client’s wishes are and spell out the desired result in the beneficiary designation form. The interpretation of the pecuniary gift will affect not only how much each beneficiary receives, but also what options will be available for preserving the availability of the life expectancy payout option for Diana. If the beneficiary designation creates two separate shares as Leave pecuniary gift to charity, residue to individuals Nora Example: Nora’s beneficiary designation for her $1 million IRA reads as follows: “Pay $100,000 to the Topeka Maritime Museum and pay the balance to my daughter Diana.”