Life and Death Planning for Retirement Benefits

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172 Life and Death Planning for Retirement Benefits
If the first spouse’s estate is not large enough to be subject to estate taxes, so the estate
“does not need” the automatic QTIP election to eliminate estate tax, see Rev. Proc. 2001-38, 2001-
1 C.B. 1335, which makes certain “unnecessary” QTIP elections automatically void. If the
automatic QTIP election applicable to an annuity in the first estate is voided, the value of the
annuity remaining at the surviving spouse’s subsequent death would not be includible in his estate
under see PLR 2003-18039. (The asset may still be included in the surviving spouse’s
estate under some other Code provision.)
3.3.11 Marital deduction for benefits left outright to spouse
Death benefits payable directly to the spouse outright in a lump sum should qualify for the
marital deduction, if the spouse is a U.S. citizen and entitled to withdraw all the benefits. See, e.g.,
PLR 8843033. Where the spouse is named as sole beneficiary, with the unrestricted right to
withdraw all the benefits, no part of the participant’s interest in the plan passes to someone other
than the spouse or her estate, so the spouse has not received a “terminable interest” .
There is one possible quibble with this conclusion. If the participant or plan document has
also named a successor beneficiary C), (D)), to receive the remaining benefits if the
spouse survives the participant but dies before having withdrawn all the benefits, some might argue
that the spouse has a nondeductible terminable interest under The author does not
believe that this scenario creates a nondeductible interest. The spouse’s interest meets the
description of a deductible interest in which provides that an interest is not a
nondeductible terminable interest if the spouse is entitled to all the income for life and has the right
(exercisable by her alone and in all events) to appoint the principal to herself with no person having
the power to appoint it to someone other than her. Compare Reg. But in any
case, at worst, the spouse’s outright interest as beneficiary would qualify for the “automatic QTIP
election” under (see .
To eliminate the concern, the beneficiary form could recite that the spouse has the right to
withdraw all income and principal of the benefits, tracking the wording of and Reg.
when (1) the participant is naming his spouse outright as beneficiary and (2)
the participant or plan document names a successor beneficiary (other than the spouse’s estate)
who will be entitled to receive the benefits that the spouse does not withdraw during her lifetime.
3.4 REA ’84 and Spousal Consent
Thi describes the federal rights granted to spouses of retirement plan participants by
the “Retirement Equity Act of 1984” (“REA”), and discusses the estate planning implications of
these rights. The applicable law is in IR n and the virtually identical ERISA
§ 205 (29 U.S.C. § 1055); and Regs. and
The purpose of this is to provide a brief overview of REA’s requirements and
exemptions, for estate planners. For complete explanation of REA, see Chapter 10 of The Pension
Answer Book . This book does not cover state law spousal rights such as community
property.
3.4.01 Introduction to the Retirement Equity Act of 1984
Retirement plans fall into three categories with respect to REA’s requirements: plans that
are subject to the full panoply of REA requirements (all pension plans, some profit-sharing plans,