Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 85
If the decedent’s account is not “physically” divided up, but the IRA provider or plan
administrator tracks each beneficiary’s gains, losses, and distributions separately, that should be
sufficient to constitute “establishment” of separate accounts.
Another way to accomplish the objective is for the participant to divide his IRA into
separate IRAs payable to the respective beneficiaries while he is still living. For example, a
participant leaving his IRA partly to charity and partly to an individual beneficiary could create
two separate IRAs, one payable to each of the respective beneficiaries. Such separate IRAs have
the nontax advantage of not requiring the beneficiaries to interact with each other after the
participant’s death. The disadvantages of having multiple IRAs while the participant is still alive
include the additional paperwork, the difficulty of keeping the IRAs in the same relative proportion
to each other when each contains different investments, and increased investment management
fees applicable to multiple smaller accounts compared with one larger account.
1.8.03 “Removing” beneficiaries by Beneficiary Finalization Date
Establishing separate accounts for multiple beneficiaries is one way to
improve the RMD situation after the participant’s death. Another is to prune the list of
beneficiaries, eliminating “undesirable” beneficiaries by means of distributions and/or disclaimers
prior to the “Beneficiary Finalization Date.”
A. The Beneficiary Finalization Date. The participant’s beneficiaries for minimum
distribution purposes are all the beneficiaries who, as of the date of the participant’s death,
are or might become entitled to inherit his benefits, minus any beneficiary who ceases to
have an interest in the benefits by a certain deadline: “[T]he employee’s designated
beneficiary will be determined based on the beneficiaries designated as of the date of death
who remain beneficiaries as of September 30 of the calendar year following the calendar
year of the employee’s death.” Reg. A-4(a).
That deadline is called the Beneficiary Finalization Date in this book, though that term is
not used in the regulations.
Although WRERA suspended the minimum distribution rules for the year 2009 (see
, WRERA did NOT extend this deadline. Thus, beneficiaries of decedents who died in 2008
still had to be “removed” by September 30, 2009, if they were not to “count” for RMD purposes,
even though no beneficiary had to take any RMD in 2009 2009-41 IRB 491, Part
V, A-4.
Post-death planning cannot somehow designate a new crop of beneficiaries. Rather, “...any
person who was a beneficiary as of the date of the employee’s death, but is not a beneficiary as of
that September 30 (e.g., because the person receives the entire benefit to which the person is
entitled before that September 30) is not taken into account in determining the employee’s
designated beneficiary for purposes of determining the distribution period for required minimum
distributions after the employee’s death.” Reg. A-4(a).
So, if there are “good” beneficiaries (e.g., individual beneficiaries with long life
expectancies) who are already named by the deceased participant (e.g., as contingent beneficiaries,
or among a group of multiple beneficiaries), it is possible to eliminate other (e.g., older or
nonindividual) beneficiaries, so that by September 30 of the year after the year of death only the
“good” beneficiaries are left.