Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

distribution but before or shortly after receiving the check. In PLR 2009-24056, the participant’s severe medical problems prevented him from completing the rollover prior to death. Meanwhile, the IRS also continued to allow post-death rollovers of pre-death distributions by surviving spouses. See PLRs 2005-23029, 2007-17021, and 2007-19018. However, understandably, the post-death rollover was not allowed where the distribution had occurred more than three years prior to the participant’s death, and the participant had spent the entire distribution prior to his death. PLR 2007-35029. B. But no “Designated Beneficiary” allowed! In order for inherited retirement benefits to be eligible for the favorable “stretch” (life expectancy of the beneficiary) payout method under the minimum distribution rules ( ¶ 1.5.05 ), the benefits must be payable to a “Designated Beneficiary.” ¶ 1.7.01 . Inherited benefits are always payable to some “beneficiary,” but not just any old beneficiary qualifies as a Designated Beneficiary. ¶ 1.7.03 . The IRS’s position is that an IRA created by the participant’s executor (to receive a rollover of a distribution made prior to the participant’s death) cannot possibly have a “Designated Beneficiary” for minimum distribution purposes. See PLRs 2001-26036, 2005-16021, 2005-16022, 2005-20038, 2007-17021, 2007-19018, 2007-40020, 2009- 10069 and 2009-24056. This IRS position is unfortunate. It is not clear why, if (for example) a participant withdrew funds from his IRA when mentally incompetent (as was the case in PLR 2007-40020), and the IRS agrees that the funds should be restored to the IRA after the participant’s death to avoid hardship, the IRS would object to having the funds restored to an IRA that has a “Designated Beneficiary,” even if the beneficiary is designated by the executor (pursuant to a court order or other proper procedures). The IRS had no problem with allowing Designated Beneficiary status for an IRA established post-death (as a result of an executor’s “recharacterization” of the decedent’s Roth IRA contribution) in PLR 2002-34074 (see ¶ 4.1.02 ). The IRS might recognize a Designated Beneficiary for RMD purposes if the rollover is made into a pre-existing account (created by the deceased participant) that already had a Designated Beneficiary (as opposed to a new account created by the executor). For example, in PLR 2005-23029, the distribution was to be rolled back into the same IRA it came out of, which had a Designated Beneficiary (the surviving spouse), and the IRS did not recite its mantra about not having a Designated Beneficiary. Similarly, in PLR 2005-20038, the IRS said the surviving spouse could roll his deceased wife’s IRA distribution either back into the original IRA she had taken the money from (IRA X), or into a new IRA established in the name of the deceased wife; and went on to say that, unless the money was rolled back into IRA X, the recipient account “will not have a Designated Beneficiary.” This implies that rolling the distribution back into the account the participant took it out of would allow the participant’s beneficiary designation to apply to the rolled funds. C. Executor must check pre-death distributions. Executors must add a new item to their checklists: Determine whether the decedent received any eligible rollover distribution that was not rolled over, and (if so) whether it would be possible and advantageous (to the estate beneficiaries) to complete that rollover on the decedent’s behalf. Distributions even further back than 60 days prior to the date of death ( i.e., the normal rollover deadline; see ¶ 2.6.06 ) could be eligible to be rolled over, under the hardship waiver