Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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provisions (see ¶ 2.6.07 ), if the decedent was hospitalized, disabled, incarcerated, unaware of thefts from his account, or for some other reason unable to complete the rollover within the allotted time. Thus, there is no maximum on the “look-back period” the executor should investigate for incomplete rollovers, other than this: There is no need to investigate distributions prior to 2002, since only post-2001 distributions are eligible for the hardship waiver of the 60-day rollover deadline. The post-death rollover of a pre-death distribution could change the substantive estate plan if the beneficiary of the IRA (into which the rollover is contributed) is not the same as the beneficiary of the estate (where the distribution was sitting prior to the rollover). This would appear to be a problematic step for the executor to take, unless the same beneficiaries will inherit the funds in the same proportions either way. The executor should obtain a court order blessing the proposed rollover if it is not specifically authorized in the will. If the rollover is going in to an account that the participant himself had established, and it is clear that the participant intended to roll the distribution into this account, then the court should approve the rollover as carrying out the decedent’s intent. If there is no preexisting IRA to roll the money into, or if the distribution was unintentional (for example because the participant was mentally incompetent), or if for some other reason it is not clear to whom the participant intended to leave this particular asset, here are two routes to consider:  One option is for the beneficiary of the rollover IRA to be the estate itself. Even if the estate is the beneficiary of the account (so there is “no Designated Beneficiary” for minimum distribution purposes, and thus no “life expectancy of the Designated Beneficiary” payout; ¶ 1.7.04 ) the rollover could make possible several years of continued deferral (compared with simply leaving the money outside a retirement plan) under the “no-DB” rules. See ¶ 1.5.06 , ¶ 1.5.08 .  Another possibility is to get court permission to name the estate beneficiaries directly as beneficiaries of the proposed rollover IRA. Although current indications are that the IRS will not accept post-death beneficiary designations as sufficient to establish a Designated Beneficiary for minimum distribution purposes (see “B”), the estate might still be better off with this approach if the estate beneficiaries are charities (see ¶ 7.2.01 ), or if estate assets are vulnerable to creditors’ claims or increased administration expenses; and possibly you or a judge or someone else will persuade the IRS to change its mind about allowing executor-named beneficiaries to be considered Designated Beneficiaries. 4.1.05 Executor’s responsibilities regarding decedent’s RMDs The Code requires an individual to take annual distributions (called “required minimum distributions” or RMDs” in this book) from such individual’s retirement plans beginning at a certain point. See Chapter 1 . Failure to take an RMD results in a 50 percent excise tax under § 4974 . See ¶ 1.9.02 . It may appear to an executor upon preliminary examination that the decedent did not take all of his RMDs. Before concluding that the participant owed a penalty, consider the possibility that for some or all of the years in question the decedent may have qualified for a “grandfather” rule, or for some other reason may actually not have been required to take distributions. See ¶ 1.3.01 .