Life and Death Planning for Retirement Benefits

215 / 507

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries 215
 See A) for how dividing an inherited plan into separate accounts can improve
minimum distribution results.
 Se for achieving a spousal rollover of benefits that are payable to a trust or estate.
4.5.01 Check the plan’s default beneficiary
If the participant failed to name a beneficiary (or no named beneficiary survived the
participant), the plan document or IRA agreement will indicate who is the default beneficiary. See
Don’t assume the estate is the default beneficiary. In the case of a qualified retirement
plan (QRP), the Retirement Equity Act of 1984 (REA) requires that all or part of the death benefits
pass to the surviving spouse if the participant was married for more than a year at the time of his
death. See Whether or not REA requires the benefits to be paid to the surviving spouse, the
QRP or IRA may provide for a human default beneficiary such as surviving spouse, children, issue,
or next of kin.
4.5.02 Invalidate the beneficiary designation
If the participant actually named the “undesirable” beneficiary, investigate whether the
beneficiary designation could be invalidated. Perhaps the participant was incompetent, or did not
comply with the formalities required by the plan to have a valid designation. This approach could
be fruitful if invalidating the designation would reinstate a more favorable prior beneficiary
designation or default beneficiary.
In Liberty Life Assurance Co. of Boston v. Kennedy, 358 F.3rd 1295 (11th Cir. 2004), a
court found that the decedent’s will was effective as a beneficiary designation under the terms of
an employee life insurance plan governed by ERISA, where (1) the will specifically disposed of
the insurance proceeds, (2) the plan permitted any writing to constitute a beneficiary designation
(i.e., the employer’s forms did not have to be used), and (3) the plan permitted posthumously-
delivered beneficiary designations to be effective. The will terms superceded the beneficiary
designation form that was on file with the employer (which named a former spouse as beneficiary).
In PLR 2003-17033, the deceased husband’s IRA beneficiary designation was complex,
possibly unclear, and evidently considered to produce an undesirable result. Three years before his
death, the participant and his spouse had signed an agreement providing that, on the death of either
spouse “title to all property” would immediately vest outright in the survivor. “It has been
represented that this agreement applies to ...[the IRA]. It has been further represented that this
agreement is being treated as the beneficiary designation with respect to” the IRA. The IRS
allowed the spouse to roll over the IRA.
4.5.03 Spousal election to take share of estate
Most practitioners concur that spousal rights in IRAs and other “nonERISA” plans are
governed by state rather than federal law. Perhaps applicable state law gives the surviving spouse
the right to claim a statutory share of a nonERISA plan. Some states give the spouse the right to
claim a share of all marital assets (including IRAs) and the right to choose which assets will be
used to fulfill her statutory share. A surviving spouse could exercise these rights by taking the
retirement plan in fulfilment of her share and rolling it over to her own retirement plan. This
strategy may not be helpful if the spouse is required to waive other benefits, or otherwise give up
too much to exercise the right, or for a QRP (spousal rights under which cannot be governed by