Life and Death Planning for Retirement Benefits

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Chapter 6: Leaving Retirement Benefits in Trust 301
purpose for shares of a single IRA that are payable to a single trust that has multiple beneficiaries,
even if the multiple beneficiaries have “separate shares” under the single trust for other income tax
purposes .
Step 2: He must name each such to-be-established separate trust directly as a beneficiary of his
retirement plan. He can do this either by establishing a separate IRA during his lifetime that is
payable only to that particular trust, or by having a single IRA that is payable in specified shares
to the respective trusts. See Form 3.5
6.3.03 Beneficiaries “removed” by Beneficiary Finalization Date
A person or entity who is a beneficiary of the participant’s retirement plan as of the date of
the participant’s death ceases to “count” as a beneficiary if he, she, or it does not “remain” as a
beneficiary as of September 30 of the calendar year following the calendar year of the employee’s
death (the “Beneficiary Finalization Date”). See
A beneficiary does not “remain” such if such beneficiary’s interest in the benefits has been
eliminated by either distribution (see “A”), disclaimer (see “B”), or other means (see “C”). The
death of a beneficiary prior to the Beneficiary Finalization Date would eliminate him as a
beneficiary only if his rights did not pass to his estate; see C).
Although suspended the minimum distribution rules for the year 2009 (see
, the suspension did NOT extend this deadline. Thus, the beneficiary of a participant who
died in 2008 (or 2009) will be “countable” unless (through distribution, disclaimer, or otherwise)
he, she, or it ceased to be a beneficiary no later than September 30, 2009 (or 2010), even though
the beneficiary was not required to take any RMD in 2009 Part V, A-4.
Here is how the Beneficiary Finalization Date concept applies to retirement benefits that
are payable to a trust as beneficiary. The determination of who are the trust beneficiaries for
purposes of determining the trust’s “see-through” status is made as of the date of death, but may
be modified by one of the following methods:
A. Distribution on or before September 30. Suppose retirement benefits are payable to a
trust that has multiple beneficiaries. For purposes of qualifying for a payout of these
benefits based on the life expectancy of one or more young individual beneficiaries of the
trust, the trustee may wish to “eliminate” one or more nonindividual beneficiaries of the
trust (to satisfy the “all beneficiaries must be individuals” rule; or one or more
older beneficiaries (so the trust’s ADP will be based on the life expectancy of a younger
“oldest trust beneficiary”; . There are three ways that distribution can be used to
“eliminate” an older and/or nonindividual beneficiary; note in each case that such option
is available only if permitted by the trust instrument.
One is by distributing, to the beneficiary you are seeking to remove, his, her, or its share
of the benefits, so that, as of the Beneficiary Finalization Date, the remaining beneficiaries of the
trust and of the retirement benefits are all individuals (or all younger individuals). For example,
see PLRs 2004-49041–2004-49042, in which the participant left his IRA to a trust that was to be
distributed, in specified percentages, to his wife and daughters. The wife took distribution of her
percentage in full by the Beneficiary Finalization Date (and rolled it over to her own IRA; see
F), . Therefore she was disregarded in determining who was the oldest beneficiary