Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Executors need to know whether various common IRA events would cause the asset to be deemed “disposed of” for purposes of the AVM. A disposition is an event “by which property ceases to form a part of the gross estate.” A mere change in form is not a disposition. The regulation’s phrase “ceases to form a part of the gross estate” is unfortunate. It does not convey a clear meaning. The only way it makes sense is if it means that the asset ceases to be owned by the person or entity who received it from the decedent (whether that person or entity is the probate estate, a trust, a retirement plan beneficiary, or a surviving joint owner). A. Mere change in form is not a disposition. To illustrate the difference between a “disposition” and a “mere change in form,” the IRS cites certain corporate transactions, and appears to make the difference hinge on whether the transaction triggers realization of income for income tax purposes, although the regulation does not explicitly say that is the criterion. See Reg. § 20.2032-1(c)(1) . Prop. Treas. Reg. § 20.2032–1(f), providing that “changes in value due to post-death events other than market conditions” will not be taken into account for AVM purposes, has no bearing on the IRA questions discussed here. The types of post-death IRA events we are considering have no effect on the value of the asset; the only issue is whether such events have the effect of closing the alternate valuation period, a subject not addressed in the proposed regulation. Let us now look at particular post-death IRA “events” and see how they fit in to the AVM picture. Regarding a sale of securities “inside” the IRA, see ¶ 4.3.05 . B. Retitling the account. For how to retitle an inherited plan on the death of the participant, see ¶ 4.2.01 . This bit of paperwork does not constitute a sale, distribution, or other disposition of the asset for alternate valuation purposes. The retitling step merely formalizes the change of ownership of the account that has already occurred (at the moment of the participant’s death). The sole purpose of this step is for the IRA provider to get the beneficiary’s address and Social Security number so it knows who owns the account. This “event” does not even rise to the level of a “mere change of form,” let alone a “disposition” of the asset. C. Transfer of account to a different custodian. An IRA beneficiary can cause his inherited IRA to be transferred to a different IRA custodian. See ¶ 4.2.02 . Following the transfer, the account remains as an inherited IRA titled in the name of the decedent payable to the beneficiary. Such changes are common where, for example, the beneficiary prefers to have the asset placed with his own financial advisor. If the change involves no sale of securities, and no taxable distribution, just an intact transfer of the inherited investments to a different IRA provider, there would not appear to be any basis for an argument that the transfer was a “disposition.” The same beneficiary owns the same securities in the same format (an inherited IRA) both before and after the transfer. If any IRA activity should be treated as a “mere change of form,” this would be it. D. Dividing the account. It can be to the advantage of multiple beneficiaries of a single inherited IRA to divide it into separate inherited IRAs, one payable to each of them. See ¶ 1.8.01 . An argument could be made that this is a “mere change in form,” and not a disposition. For one thing, such a division is nontaxable, and thus is analogous to the