Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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Like life insurance proceeds, retirement benefits generally pass, as nonprobate property, by contract, to the beneficiary named on the participant’s beneficiary designation form for the plan in question. Unless otherwise provided in the beneficiary designation form or in the documents establishing the retirement plan, the provisions of the participant’s will are irrelevant in determining who inherits his retirement benefits. Most retirement plans and IRAs have a printed or on-line form the participant must use to name a beneficiary for his death benefits. Some plans and IRA providers will accept attachments to the printed form, or even a separate instrument in place of the plan’s form. For purposes of the post-death minimum distribution rules, the beneficiary means the person or persons who inherit the plan on the participant’s death. For example, a beneficiary designation form typically names a primary beneficiary (such as the participant’s spouse) and one or more contingent beneficiaries (such as the participant’s issue) who will take the benefits if the primary beneficiary does not survive the participant. If the primary beneficiary survives the participant, the primary beneficiary is “the” beneficiary, unless the primary beneficiary “disclaims” the benefits (see ¶ 4.4.10 ). If the primary beneficiary does not survive the participant, the contingent beneficiary becomes “the” beneficiary: Regina Example: Regina designates her children A, B, and C as primary beneficiaries of her IRA, with the proviso that, if any child predeceases her, such child’s issue (the contingent beneficiaries as to such child’s share) take the share such child would have taken if living. B predeceases Regina, leaving two children and no other issue. Regina dies. There are no disclaimers or distributions prior to the Beneficiary Finalization Date. Regina’s beneficiaries are A, C, and the two children of B. The children of A and of C (if any) are still merely “contingent” beneficiaries as of Regina’s death and accordingly drop out of the picture; they are not entitled to anything. See ¶ 1.5.12 (D), ¶ 1.6.02 . If the participant does not name a beneficiary; or if all of the beneficiaries named by the participant either fail to survive him or disclaim the benefits; then the benefits pass to the person(s) or entity(ies) named in the plan documents to take in that case, usually called the “ default beneficiary .” See ¶ 4.5.01 . The default beneficiary is “the” beneficiary in this case. Beneficiary designations can raise many issues: The form may contain ambiguous or unclear wording. The form may be missing or for some reason arguably ineffective. There may be a question as to which state’s law governs the interpretation of the beneficiary designation form. Those subjects are beyond the scope of this book. This book assumes that the identity of the beneficiary is clear. 1.7.03 Definition of Designated Beneficiary In order for benefits to be distributable over the life expectancy of the Designated Beneficiary, there must be a Designated Beneficiary. Not every beneficiary is a Designated Beneficiary. The Code defines Designated Beneficiary as “any individual designated as a beneficiary by the employee.” § 401(a)(9)(E) ; emphasis added. The regulations substantially expand this definition: