Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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B. Consider having disclaimer occur at trust level. If it is anticipated that a beneficiary might want to make a “formula” disclaimer ( e.g. , a surviving spouse as primary beneficiary disclaiming an amount sufficient to fully fund the participant’s credit shelter trust), consider the practicalities of drafting such a formula, getting the plan administrator to accept it, and carrying out its terms all within a brief nine-month window after the participant’s death. If that looks like it might be difficult to accomplish, or if there is any other reason to anticipate that the plan administrator may pose obstacles to the disclaimer (see ¶ 4.4.09 ), consider naming, as primary beneficiary, a trust which gives the surviving spouse the right to (1) all income for life, plus (2) principal if needed for health or support, plus (3) an unrestricted power to withdraw all principal during her life, plus (4) a general power of appointment at death. If she wants to keep the retirement benefits, she can withdraw them from this trust and roll them over; see ¶ 3.2.09 . If she wants to convert the trust to a “credit shelter trust” for her life benefit, she can disclaim rights (3) and (4). If she wants to disclaim all interests, she can do that. She can disclaim any of these rights as to all or a fractional portion of the trust, if the trust contains the proper language. In doing all this, she will need to deal only (or primarily) with the (friendly, expert, understanding) trustee. This sidesteps the problems of dealing with the (cold, bureaucratic, nonexpert) plan administrator. C. Consider naming different contingent beneficiaries for death vs. disclaimer. The most common use of this dual designation of contingent beneficiary is where: (1) the primary beneficiary is the spouse and (2) the contingent beneficiary in case of the spouse’s disclaimer is a trust of which the spouse is a life beneficiary, and (3) the contingent beneficiary in case of the spouse’s death is the same person (or group of people) who is the remainder beneficiary of the trust at the spouse’s death. See Form 3.4, Appendix B . D. Facilitate disclaimers. When a disclaimer is anticipated at the estate planning stage, take steps beforehand to facilitate that process, including: spousal waiver of REA rights (¶ 3.4) , if needed; instructions to the beneficiaries regarding the choices that will be available to them and what considerations should be applied in making the choices; granting disclaimer authority to fiduciaries, along with guidelines for exercise of the power to disclaim; and review the plan documents, § 2518 requirements, and state law to make sure these pose no obstacles to the proposed disclaimers. 4.5 Other Cleanup Strategies When a retirement plan participant dies leaving benefits to a beneficiary who is not the ideal choice, there are other “cleanup strategies” besides disclaimers. Some cleanup strategies are described in other parts of this book:  See ¶ 1.8.03 and ¶ 7.2.02 (C) for how a post-death distribution can eliminate an “undesirable” beneficiary for minimum distribution purposes. See ¶ 6.3.03 for the same strategy with respect to a trust.