Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

IRD items) continue to be frozen out of any basis step-up at death, just as was true prior to the estate tax “repeal.” § 1022(f). Will Congress put the estate tax back into force before 2011? If so, will the revived estate tax apply to deaths that occurred prior to the legislation? If so, is that constitutional? And what exemption will Congress allow? Will they raise the $1 million exemption slated to arrive in 2011? Will they revive stepped-up basis along with the estate tax, or give us an estate tax PLUS carryover basis? These matters are unknown as this book goes to press. 4.4 Qualified Disclaimers of Retirement Benefits A disclaimer is the refusal to accept a gift or inheritance. Federal tax law recognizes that a person cannot be forced to accept a gift or inheritance. Therefore, a disclaimer (provided it meets the requirements of § 2518 ; ¶ 4.4.02 ) is not treated as, itself, a gift. § 2518(a) . Since the person making the disclaimer never accepted the property in the first place, the theory goes, he never owned it and therefore he could not have given it away. Disclaimers of inherited retirement benefits can be useful in post mortem planning. However, not every refusal to accept an inheritance is a qualified disclaimer, entitled to the blessings of § 2518 . If a beneficiary renounces an inheritance in a manner that does not meet the requirements of § 2518 , the renunciation would be considered (for purposes of the federal gift tax) as a transfer to the person who received the property as a result of the renunciation, potentially resulting in imposition of gift taxes (and income tax; see ¶ 4.4.03 ). 4.4.01 Post-mortem disclaimer checklist Use the checklist at ¶ 4.4.13 for building retirement-benefit disclaimers into the estate plan. After the participant has died, use this checklist to prepare for and/or carry out disclaimers of his retirement benefits: A. Delay “acceptance” until disclaimer decision is made. Upon the death of a client, all plan and IRA beneficiary designations should be reviewed as soon as possible. Either (1) no benefits should be distributed to any beneficiary until this review is completed or (2) if a beneficiary wants to take a distribution (other than the RMD for the year of death; see ¶ 4.4.05 (A)) the request for the distribution should be accompanied by a statement that the beneficiary is not thereby accepting the entire account (just the amount distributed) (see ¶ 4.4.05 (B)). No beneficiary should exercise investment (or other) control over inherited plan benefits until this review is completed; see ¶ 4.4.04 . If any beneficiary designation appears undesirable, consider the use of a qualified disclaimer, if that will cause the benefits to pass to the “right” beneficiary (see ¶ 4.4.08 ). B. How to do partial disclaimers. If making a partial disclaimer, review Reg. § 25.2518-3 , which discusses and gives examples of disclaimers of part of an inheritance. Follow the “successful” examples, and the rules stated in Rev. Rul. 2005-36 ( ¶ 4.4.05 (A)) as closely as possible. C. Comply with state law requirements. See ¶ 4.4.03 . Should a beneficiary’s disclaimer comply with the law of the participant’s domicile? The beneficiary’s domicile? Or the state where the plan or IRA is administered? If there is any doubt, comply with all of the above!