Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 67
effect of such a provision on the ability of the original beneficiary’s executor to disclaim
the benefits.
D. Contingent beneficiary. Some practitioners assume that, if the original beneficiary dies
after the participant, the account passes to the contingent beneficiary named by the
participant. This would typically NOT be true. A contingent beneficiary is not the same as
a successor beneficiary. Usually, the participant’s beneficiary designation form provides
that the contingent beneficiary will receive the benefits only if the primary beneficiary
predeceases the participant (or disclaims the benefits). Once the primary beneficiary
survives the participant, the primary beneficiary (unless he disclaims the benefits; see ¶
4.4) becomes the absolute owner of the account and the contingent beneficiary’s interest is
completely eliminated. The plan documents (including the participant’s beneficiary
designation; see “E”) could provide otherwise, but typically they don’t.
E. Participant names successor beneficiary. Some participants would like to include
provisions dictating what happens to the benefits remaining in the account if the original
beneficiary dies after the participant but before withdrawing all the benefits. As noted at
“D,” this is something above and beyond naming a “contingent beneficiary” to take the
benefits if the primary beneficiary does not survive the participant. There is nothing illegal
about having the participant name a successor beneficiary, but it does raise property law
and estate tax issues beyond the scope of this book. Most IRA providers do not allow this
approach, unless the account is an individual retirement trust (IRT; ¶ 6.1.07). See
for marital deduction effects, A) for possible disclaimer effects.
1.5.13 What is the ADP after the beneficiary’s death?
explained how to determine who is the successor beneficiary. This
explains the Applicable Distribution Period (ADP; that applies to the successor
beneficiary.
Subject to two rarely-applicable exceptions, the death (in the case of an individual
beneficiary) or termination of existence (in the case of a trust or estate named as beneficiary) of
the original beneficiary has no effect on the ADP. The successor beneficiary simply steps into the
shoes of the original beneficiary and continues to take out the benefits using the ADP that applied
to the original beneficiary. Any such subsequent beneficiary is merely a “successor” to the original
beneficiary’s interest and is ignored in determining the ADP. Reg. A-7(c)(2).
For example, if the benefits were payable to a Designated Beneficiary who survived the
participant but then died prior to having withdrawn all the benefits, the successor beneficiary
continues to withdraw over what is left of the life expectancy of the original Designated
Beneficiary (or of the deceased participant if applicable; see B)–(D)), or at any faster rate
required by the plan or desired by the successor beneficiary. This rule holds true even if the
Designated Beneficiary, having survived the participant, dies before the Beneficiary Finalization
Date; see
Hugh Example: Hugh, as beneficiary of his mother’s IRA, is taking RMDs in annual installments
over his 34-year life expectancy. He dies 10 years into his 34-year ADP. At Hugh’s death,
ownership of the IRA passes to Regis, a successor beneficiary named by Hugh. RMDs to Regis