Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Third, in Rev. Rul. 2005-36, 2005-1 CB 1368 ( ¶ 4.4.05 (A)) the distribution requirement for the year of death was satisfied where the distribution was made to only one beneficiary, even though (as a result of that beneficiary’s later partial disclaimer) that beneficiary was not the sole beneficiary of the account. However, some plan administrators might take a different view and require that each beneficiary to take a proportionate share of the year-of-death RMD. B. Must subsequent-year RMDs be apportioned? When the interests of multiple beneficiaries do not meet the requirements for “separate accounts,” it is unclear whether the distribution requirement is imposed on the collective account (so that the requirement is satisfied as long as the total RMD amount for the account is distributed to any one or more of the account beneficiaries); or whether, alternatively, each beneficiary must take such beneficiary’s pro rata share of the total RMD. Under § 401(a)(9) , the portion of the account payable to a Designated Beneficiary must be distributed over the life expectancy of that beneficiary; this suggests that each beneficiary has a personal obligation to take an annual distribution from his share. However, arguably the IRS has “overruled” this Code provision in its separate account regulations, by providing that: “Except as otherwise provided…[under Reg. § 1.401(a)(9)-8 , A-2, the separate accounts rule discussed at ¶ 1.8.01 ], if an employee’s benefit under a defined contribution plan is divided into separate accounts under the plan, the separate accounts will be aggregated for purposes of satisfying the rules in section 401(a)(9). Thus, except as otherwise provided in this A-2, all separate accounts... will be aggregated for purposes of section 401(a)(9).” Reg. § 1.401(a)(9)-8 , A-2(a)(1). Emphasis added. Different states have different laws regarding the effect on inheritances of simultaneous or close-in-time deaths. State A may presume that the beneficiary predeceased the participant if they die simultaneously, in a common accident or catastrophe, or otherwise under such circumstances that it cannot be easily determined who survived whom. State B’s law may provide that the beneficiary is deemed to have predeceased the participant if the beneficiary dies within 120 hours after his benefactor. Seymour Goldberg, CPA, points out that some states have now adopted the “120-hour rule” as part of the “Uniform Simultaneous Deaths Act.” Such a law could operate to change the “beneficiary” of an IRA in the case of simultaneous or close-in-time deaths unless the beneficiary designation form specifically overrides state law presumptions. Some beneficiary designation forms provide that if the primary beneficiary fails to survive the participant by a particular period of time (such as 30 days) he loses the rights to the benefits, and the contingent beneficiary becomes “the” beneficiary. The IRS has approved a beneficiary designation that contained such a condition, and recognized the primary beneficiary as the Designated Beneficiary, where the primary beneficiary did survive for the required period of time If, as this regulation states, the plan is treated as a single account, then a distribution to any of the beneficiaries would appear to satisfy the distribution requirement. Simultaneous and close-in-time deaths