Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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named a successor beneficiary, the successor beneficiary steps into the shoes of the original beneficiary as owner of the account. See ¶ 4.4.04 (C) regarding how designating a successor beneficiary affects the original beneficiary’s ability to disclaim. B. Beneficiary’s estate . Some plans and IRAs require the benefits to be paid to the original beneficiary’s estate if the beneficiary dies before having withdrawn all the benefits he is entitled to. This is also likely to be where the benefits go if the original beneficiary dies without having named a successor beneficiary (but see “C”). In either case, the estate of the original beneficiary steps into the shoes of the original beneficiary as owner of the account. See ¶ 6.1.05 for ability to transfer the account out of the beneficiary’s estate. C. Successor beneficiary named by the plan. At least one IRA provider spells out, in its IRA documents, individuals (for example, the deceased beneficiary’s surviving spouse or children) who will succeed to the account if the original beneficiary (having survived the participant) dies before having withdrawn all of the benefits. Unlike with designating individuals to take if the participant dies without having named a beneficiary ( ¶ 1.7.03 ), there is no RMD advantage to having the plan specify individual successor beneficiaries, since the identity of the successor beneficiary has no effect on the ADP ( ¶ 1.5.13 ; see ¶ 1.6.05 (C) for a rarely-applicable exception to this rule). See ¶ 4.4.12 (A) for possible effect of such a provision on the ability of the original beneficiary’s executor to disclaim the benefits. D. Contingent beneficiary vs. successor beneficiary. Some practitioners assume that, if the original beneficiary dies after the participant, the account passes to the contingent beneficiary named by the participant. This would typically NOT be true. A contingent beneficiary is not the same as a successor beneficiary . Usually, the participant’s beneficiary designation form provides that the contingent beneficiary will receive the benefits only if the primary beneficiary predeceases the participant (or disclaims the benefits). Once the primary beneficiary survives the participant, the primary beneficiary (unless he disclaims the benefits; see ¶ 4.4 ) becomes the absolute owner of the account and the contingent beneficiary’s interest is completely eliminated. The plan documents (including the participant’s beneficiary designation; see “E”) could provide otherwise, but typically they don’t. E. Participant names successor beneficiary. Some participants would like to include provisions dictating what happens to the benefits remaining in the account if the original beneficiary dies after the participant but before withdrawing all the benefits. As noted at “D,” this is something above and beyond naming a “contingent beneficiary” to take the benefits if the primary beneficiary does not survive the participant. There is nothing illegal about having the participant name a successor beneficiary, but it does raise property law and estate tax issues beyond the scope of this book. Most IRA providers do not allow this approach, unless the account is an individual retirement trust (IRT; ¶ 6.1.07 ). See ¶ 3.3.11 for marital deduction effects, ¶ 4.4.12 (A) for possible disclaimer effects.