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death benefit


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8 replies to this topic

#1 Gary

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Posted 05 December 2011 - 07:18 PM

An active participant died in 2007.

there was no designated benny other than his living trust.

plan provides that if no benny then the death benefit must be distributed by end of 5th caendar year following death.

so it seems that the distribution must go to his estate by 12/31/2012.

he would have reached 70 1/2 in 2010.

so if lump sum goes to estate in 2012:

does estate then pay required taxes?

does it have to go to a benny in will immediately?

other views?

perhaps this is all for the tax advisor to decipher.

thanks

#2 david rigby

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Posted 05 December 2011 - 08:19 PM

Do you care what the tax responsibility of the estate is?
I'm just asking.
I'm a retirement actuary. Nothing about my comments or advice is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, certainly not all the time, it might be reasonable to interpret my comments as actuarial advice.

#3 Gary

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Posted 05 December 2011 - 08:34 PM

i am trying to determine how such a distribution might work logistically and

the concern is if they roll money into an IRA indefinitely and think it can avoid taxes and ultimately holding me accountable for any harmful tax consequences.

My understanding is that if the distribution is subject to the 5 year rule, it is completely taxable by the end of such period. and if that is correct then there are concerns with the distribution remaining in an IRA account after such period.

just trying to determine if the fact set of my interpretation is on point or if there is anything else I might learn re: such a situation.
thanks

#4 david rigby

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Posted 05 December 2011 - 11:23 PM

Just off the top of my head:
- an estate probably cannot create an IRA,
- assuming this death benefit is not rollable (by the estate), then the default withholding is not 20%, but might be some other percent.

Have you checked IRS Publications 590 and 575 to see if either refers to "estate"?

BTW, the PA might be prudent to remind the estate's executor that the estate should have its own TIN, rather than use the deceased's SSN. (But the PA will follow advice from the plan's ERISA attorney rather than my advice.)
I'm a retirement actuary. Nothing about my comments or advice is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, certainly not all the time, it might be reasonable to interpret my comments as actuarial advice.

#5 Bird

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Posted 06 December 2011 - 09:36 AM

Am I missing something here? What do you mean when you say "...there was no designated benny other than his living trust"? So his living trust is his beneficiary? Doesn't it set up a trust at his death, with terms, or does it in turn just name the estate?

#6 Gary

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Posted 06 December 2011 - 11:11 AM

The benny designation says the guy's name Living Trust.

The plan doc uses the 5 year payout method if there is no designated benny. Since the death occurred in 2007 (well before I worked on this case) I am treating this as a situation where the 5 year rule is reasonable.

The plan was terminated in late 2010 and this is the only benefit not yet distributed.

So if it goes to his this trust (the plan admin refers to it as his estate) I don't see what IRA they can transfer it to. And if they transfer it to say a son's IRA if he is listed as recipient in the will for eg. then it would seem he would have to distribute this IRA by end of 2012.

Just trying to sort this out, thanks for the comments.

#7 masteff

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Posted 06 December 2011 - 11:30 AM

Am I missing something here? What do you mean when you say "...there was no designated benny other than his living trust"? So his living trust is his beneficiary? Doesn't it set up a trust at his death, with terms, or does it in turn just name the estate?

I'm with Bird. Unless some odd mechanism of the living trust failed to make it exist after his death, then it was the beneficiary. A trust might fail to be a "designated beneficiary" under Reg 1.401(a)(9)-4 but it's still the plan beneficiary. Failing to be a "designated bene" for purposes of 401(a)(9) merely means the account is locked into the 5-year method, which it is anyway because (I presume) lifetime distributions weren't started within the required time frame.

Step one is find the living trust's trustee.
Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

#8 mbozek

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Posted 06 December 2011 - 01:35 PM

The benny designation says the guy's name Living Trust.

The plan doc uses the 5 year payout method if there is no designated benny. Since the death occurred in 2007 (well before I worked on this case) I am treating this as a situation where the 5 year rule is reasonable.

The plan was terminated in late 2010 and this is the only benefit not yet distributed.

So if it goes to his this trust (the plan admin refers to it as his estate) I don't see what IRA they can transfer it to. And if they transfer it to say a son's IRA if he is listed as recipient in the will for eg. then it would seem he would have to distribute this IRA by end of 2012.

Just trying to sort this out, thanks for the comments.


A living trust can be a bene of a retirement benefit b/c it has 1 or more trustees who hold the property for the trust beneficaries. Has the plan tried to find out who the trustee is? Has the trustee ever applied for benefits?

Or is this one of those stupid situations where the employee named his living trust as beneficiary but never told the trustee of the living trust or heirs so they dont know that there are additional assets?
mjb

#9 Gary

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Posted 06 December 2011 - 08:19 PM

i think then that the plan administrator needs to be advised that the distribution goes to the living trust and not an IRA account of any kind. Of course the 5th year ends 12/31/2012, but if it is to be dsitributed now, it seems it must go into the trust and not any IRA.

thanks for discussion.