Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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“A-2. No, a designated beneficiary is an individual who is designated as a beneficiary under the plan whether or not the designation under the plan was made by the employee.” Reg. § 1.401(a)(9)-4 , A-2.

So, there are several elements to achieving Designated Beneficiary status:

1. Only individuals can be Designated Beneficiaries. An estate does not qualify; ¶ 1.7.04 . A trust is not an individual, but, if various rules are complied with, you can “see through” the trust and treat the individual trust beneficiaries (for some but not all purposes) as if the participant had named them directly as beneficiaries. See ¶ 6.2.01 , ¶ 6.2.03 . It is not known whether a single-member LLC (or other single member entity) that is owned by an individual, and that is not treated for federal tax purposes as an entity separate from its owner, would be regarded as an “individual” for this purpose. See Reg. § 301.7701-3 . 2. If there are multiple beneficiaries, all must be individuals and it must be possible to identify the oldest member of the group. See ¶ 1.7.05 . You also must determine whether the separate accounts rule applies for ADP purposes. ¶ 1.8.01 (B). 3. Finally, the beneficiary must be designated either “by the terms of the plan” or (if the plan allows this; almost all plans do) by the participant. If the participant fills out his beneficiary form naming “my spouse,” or “my children,” or “my friends Larry, Moe, and Curly,” as his beneficiaries, and the specified individual(s) survive the participant and do not disclaim, there is no problem: We have individual beneficiaries designated by the participant, so there is a Designated Beneficiary whose life expectancy can be used as the ADP after the participant’s death. If the participant does not fill out a beneficiary designation form; or if all the beneficiaries he named fail to survive him or disclaim the benefits; the benefits will pass to the person(s) or entity(ies) (often called the “ default beneficiary ”) specified in the IRA agreement or other documents governing the retirement plan. Some plan documents specify individuals as default beneficiaries. See PLR 2005-48027 for an example. QRPs generally must provide that benefits will be paid to the participant’s surviving spouse as default beneficiary; see ¶ 3.4 . If the default beneficiary is an individual, then the participant still has a Designated Beneficiary. In many cases, however, if the participant fails to fill out the beneficiary form (or if the beneficiaries he named fail to survive him), the plan or IRA will provide that the benefits are paid to the participant’s estate. This will mean loss of the ability to use a beneficiary’s life expectancy as the ADP; see ¶ 1.7.04 . In PLR 2006-50022, a beneficiary designation form stating that the beneficiary was to be determined “per my will” was apparently treated by all parties, including the IRS, as leaving the benefits to the participant’s estate. In PLR 2008-46028, the IRS ruled that a beneficiary designation “as stated in wills” was not sufficient to establish a Designated Beneficiary.