Life and Death Planning for Retirement Benefits

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214 Life and Death Planning for Retirement Benefits
B. Consider having disclaimer occur at trust level. If it is anticipated that a beneficiary
might want to make a “formula” disclaimer (e.g., a surviving spouse as primary beneficiary
disclaiming an amount sufficient to fully fund the participant’s credit shelter trust),
consider the practicalities of drafting such a formula, getting the plan administrator to
accept it, and carrying out its terms all within a brief nine-month window after the
participant’s death.
If that looks like it might be difficult to accomplish, or if there is any other reason to
anticipate that the plan administrator may pose obstacles to the disclaimer (se , consider
naming, as primary beneficiary, a trust which gives the surviving spouse the right to (1) all income
for life, plus (2) principal if needed for health or support, plus (3) an unrestricted power to
withdraw all principal during her life, plus (4) a general power of appointment at death. If she
wants to keep the retirement benefits, she can withdraw them from this trust and roll them over;
see If she wants to convert the trust to a “credit shelter trust” for her life benefit, she can
disclaim rights (3) and (4). If she wants to disclaim all interests, she can do that. She can disclaim
any of these rights as to all or a fractional portion of the trust, if the trust contains the proper
language. In doing all this, she will need to deal only (or primarily) with the (friendly, expert,
understanding) trustee. This sidesteps the problems of dealing with the (cold, bureaucratic,
nonexpert) plan administrator.
C. Consider naming different contingent beneficiaries for death vs. disclaimer. The most
common use of this dual designation of contingent beneficiary is where: (1) the primary
beneficiary is the spouse and (2) the contingent beneficiary in case of the spouse’s
disclaimer is a trust of which the spouse is a life beneficiary, and (3) the contingent
beneficiary in case of the spouse’s death is the same person (or group of people) who is the
remainder beneficiary of the trust at the spouse’s death. See Form 3.4,
D. Facilitate disclaimers. When a disclaimer is anticipated at the estate planning stage, take
steps beforehand to facilitate that process, including: spousal waiver of REA rights
if needed; instructions to the beneficiaries regarding the choices that will be available to
them and what considerations should be applied in making the choices; granting disclaimer
authority to fiduciaries, along with guidelines for exercise of the power to disclaim; and
review the plan documents, requirements, and state law to make sure these pose no
obstacles to the proposed disclaimers.
4.5 Other Cleanup Strategies
When a retirement plan participant dies leaving benefits to a beneficiary who is not the
ideal choice, there are other “cleanup strategies” besides disclaimers. Some cleanup strategies are
described in other parts of this book:
 See nd C) for how a post-death distribution can eliminate an
“undesirable” beneficiary for minimum distribution purposes. See for the same
strategy with respect to a trust.