Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Disclaimer-activated gift

This approach may appeal to a client who would like to encourage his individual beneficiary to be philanthropic. The participant names an individual (such as a son or daughter) as primary beneficiary of the plan, and names a charity as contingent beneficiary, specifying that the charity is to receive any benefits disclaimed by the primary beneficiary. See PLR 2001-49015 for an example of this type of planning. For detail on disclaimers of retirement benefits, see ¶ 4.4 . Sample “disclaim-to-charity” form I name as Primary Beneficiaries of my IRA my two sons, Cain and Abel, in equal shares; provided, that if either of my said sons predeceases me, or disclaims all or a portion of his share of this my IRA, that son’s share (or the portion thereof so disclaimed, as the case may be) shall be paid, instead, to the Nature Conservancy, for its general charitable purposes. The participant might express a wish (preferably in a separate letter, to avoid the necessity of getting the plan administrator to deal with a nonstandard beneficiary designation form) that the child disclaim all or part of the benefits. Why not just leave the benefits to the child, along with a letter expressing the parent’s wish that the child give the funds to charity? The disclaimer route is preferable because of the income tax consequences. If the child is the beneficiary of the account and does not disclaim it, the child cannot later assign the benefits to a charity without first paying income tax on them. The child may not be able to eliminate the income tax on the distribution through the charitable deduction; see ¶ 7.7.01 . In contrast, if the charity receives the benefits as the result of the child’s qualified disclaimer, the income associated with the benefits is shifted to the tax-exempt charity. GCM 39858. The contingent beneficiary that will receive the benefits upon the primary beneficiary’s disclaimer can be any type of charity that is suitable to receive retirement benefits (see ¶ 7.5.01 – ¶ 7.5.08 ), EXCEPT that it CANNOT be: 1. A private foundation ( ¶ 7.5.02 ) of which the disclaimant is a trustee or manager having power to choose recipients of the foundation’s funds, unless the foundation is legally required to hold the disclaimed assets in a separate fund over which the disclaimant does not have such powers. This is because of the requirement that disclaimed assets must pass “without any direction on the part of” the disclaimant. § 2518(b)(4). According to PLR 2005-18012, a disclaimer in favor of a donor-advised fund (DAF; ¶ 7.5.03 ) does not violate requirement #2, even if the disclaimant is an “advisor” to the DAF, because the advisor merely advises; he cannot “direct” distribution of the DAF’s funds. 2. A charitable remainder trust ( ¶ 7.5.04 ) or gift annuity ( ¶ 7.5.08 ) of which the disclaimant is an income beneficiary (unless the disclaimant is the participant’s surviving spouse), because of the requirement that disclaimed property must pass, as a result of the disclaimer, either to the participant’s surviving spouse or to someone other than the disclaimant. § 2518(b)(4) . See Christiansen , 130 T.C. 1 (2008), aff’d 586 F.3d 1061 (8 th Cir. 2009) , in