Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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In many cases, however, if the participant fails to fill out the beneficiary form (or if the beneficiaries he has specified fail to survive him), the plan or IRA will provide that the benefits are paid to the participant’s estate. This will mean loss of the ability to use a beneficiary’s life expectancy as the ADP; see ¶ 1.7.04 . In PLR 2006-50022, a beneficiary designation form stating that the beneficiary was to be determined “per my will” was apparently treated by all parties, including the IRS, as leaving the benefits to the participant’s estate. In PLR 2008-46028, the IRS ruled that a beneficiary designation “as stated in wills” was not sufficient to establish a Designated Beneficiary. A beneficiary named by the participant’s executor is not considered a “beneficiary under the plan” and therefore cannot be a Designated Beneficiary; see ¶ 4.1.04 (B). For the effect of post- death reformation of the beneficiary designation form, see ¶ 4.5.05 . 1.7.04 Estate cannot be a Designated Beneficiary If benefits are payable to the participant’s “estate,” the participant has no Designated Beneficiary, even if all beneficiaries of the estate are individuals. Reg. § 1.401(a)(9)-4 , A-3, § 1.401(a)(9)-8 , A-11; PLR 2001-26041. The executor can transfer the inherited IRA to the estate beneficiaries (see ¶ 6.1.05 ); however, such a transfer will not have the effect of allowing the estate beneficiaries to use their own life expectancies for computing RMDs, even if the transfer is completed before the Beneficiary Finalization Date ( ¶ 1.8.03 ). See ¶ 3.2.09 for whether a spousal rollover may still be available. See ¶ 4.4.11 (C) regarding disclaimers in this situation. By making a “§ 645 election,” a decedent’s revocable trust can be treated for income tax purposes as if it were (all or part of) the probate estate. See ¶ 6.2.11 . If retirement benefits are payable to the participant’s estate, there is no reason to believe that having the trust make a “645 election” would cause the trust, rather than the estate, to be treated as the beneficiary for RMD purposes. 1.7.05 Multiple beneficiary rules and how to escape them This ¶ 1.7.05 and the following ¶ 1.7.06 explain the special minimum distribution rules that apply when a participant dies leaving his retirement benefits to more than one beneficiary . The post-death RMD Road Maps at ¶ 1.5.03 (F) and ¶ 1.5.04 (F) directed you here in that situation. The IRS has two “multiple beneficiary rules,” both of which have negative effects on post- death payout options, but allows two “escape hatches” to mitigate these negative results. The two multiple beneficiary rules are: If the participant has more than one beneficiary, A. The participant has no Designated Beneficiary unless all of the beneficiaries are individuals. Reg. § 1.401(a)(9)-4 , A-3. See ¶ 1.5.06 and ¶ 1.5.08 for the “no-DB rules” applicable in this case; and B. If all of the beneficiaries are individuals, the ADP is the oldest beneficiary’s life expectancy. Reg. § 1.401(a)(9)-5 , A-7(a)(1). See ¶ 1.5.05 for how to compute this. The two escape hatches from these rules are: