Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

 See ¶ 1.8.01 (A) for how dividing an inherited plan into separate accounts can improve minimum distribution results.

 See ¶ 3.2.09 for achieving a spousal rollover of benefits that are payable to a trust or estate.

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 ¶ 1.7.02 . 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 ¶ 3.4 . Whether or not REA requires the benefits to be paid to the surviving spouse, the QRP or IRAmay provide for a human default beneficiary such as surviving spouse, children, issue, or next of kin. 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 The will terms superceded the beneficiary designation form that was on file with the employer (which named a former spouse as beneficiary).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. 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 Spousal election to take share of estate Invalidate the beneficiary designation