Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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and where (it was stipulated) applicable state law provided that property vested in the beneficiary immediately on the benefactor’s death with right to possession delayed until completion of the survivorship requirement period. PLR 2006-10026. There are no IRS pronouncements regarding who is considered the beneficiary for RMD purposes if the original beneficiary failed to survive for a period of survival required by the beneficiary designation form or by applicable state law, so that the formerly-contingent beneficiary becomes the only person entitled to the benefits. Presumably, as long as the required period of survival did not extend beyond the Beneficiary Finalization Date ( ¶ 1.8.03 ), the IRS would recognize the formerly-contingent, now-primary beneficiary as “the” beneficiary, since he is entitled to the benefits “contingent on the employee’s death or another specified event” (see ¶ 1.7.03 , second paragraph). The IRS should not treat the formerly-contingent-now-primary beneficiary as a mere successor beneficiary ( ¶ 1.5.12 ), because the original primary beneficiary never became entitled to the benefits. Some practitioners have raised a concern that including a requirement that the primary beneficiary survive by a particular period of time could mean that there is no Designated Beneficiary at all —because there is no one who is entitled to the benefits as of the date of death. Upon further study, however, such concerns may be laid to rest: We know that contingent and remainder beneficiaries “count” as beneficiaries, even though they are not entitled to immediately access the benefits and may never receive any of the benefits. In short, we know the IRS generally counts potential beneficiaries as “beneficiaries” for purposes of the definition of Designated Beneficiary ( ¶ 6.3 ), without regard to the ability to immediately take the benefits out of the plan.

1.8 Modifying RMD Results after the Participant’s Death

Required minimum distributions (RMDs) after the participant’s death must be paid to the participant’s beneficiary. Who is required to take those distributions and over what period of time depends on the identity of the beneficiary. Generally, the identity of the beneficiary (and the resulting minimum distribution requirements) are determined as of the date of the participant’s death . In this ¶ 1.8 , we look at two ways you can modify the application of the minimum distribution rules after the participant’s death: One is by dividing the participant’s benefit into “separate accounts” for multiple beneficiaries ( ¶ 1.8.01 – ¶ 1.8.02 ). The other is by “removing” beneficiaries prior to the Beneficiary Finalization Date ( ¶ 1.8.03 ).

The separate accounts rule