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Child as Pension Plan beneficiary upon death of surviving spouse. Pre


Guest Russell Anderson
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Guest Russell Anderson

My wife and I are modifying our estate planning family trust. Included in our assets is a qualified pension plan with myself as participant. As this is a second marriage for both of us, we wish to have my wife as primary beneficiary of the pension plan whereby she would receive all current income while she was still alive. The alternate beneficiary, after the death of my wife, would be the Family Trust A, which designates my daughter as beneficiary.

The intent here is that my wife, while she survives me, would have full use of the current income and, if necessary, principal . Up her death, the pension plan assets would go (via Trust A) to my daughter. In addition, I would like to keep the pension plan intact with periodic payments to her to retain the tax-deferred status of the assets and avoid the immediate income tax if a total payout were made.

In addition, since my daughter is currently 39 yo, if we could include her as a beneficiary, could we reduce the minimum required payout from the pension plan. I am 63 you and my wife is 58 yo.

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You didn't discuss the ownership of the entity that sponsors the pension plan. If you work for a company owned by unrelated parties, the plan document is not likely to let you do what you want to do. If the sponsor is a family owned business, will the business survive you? (You need a sponsor to have a pension plan?)

Would it make more sense to move the money to an IRA (or IRAs)? Make certain that you find an IRA custodian that isn't going to distribute everything upon your death and screw up the planning.

PS: 1. Don't forget about the joint and survivor annuity rules.

2. Having a trust as a beneficiary of a qualified plan is complicated enough that I think that you are foolish to go to this board instead of a specialist.

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Guest Russell Anderson

The sponsor is a family owned corporation and will survive both spouses.

Your point is well taken about using an estate planning specialist for this problem. Indeed, I am and he was gracious enough to refer me to "www.trustsandestates.net" which is from where I "surfed" to this board. This is how, as a layperson, I can ask intelligent questions of my attorney and understand concepts he explains. Kind of like an informed patient working with his doctor in his treatment.

Your idea of converting to an IRA and question about a sponser that could survive both spouses was helpful. Thank you.

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  • 2 weeks later...
Guest John L. Olsen, CLU, ChFC

If your wife is the primary beneficiary of this qualified plan, she will have unlimited access to that money at your death, including the right to do a "spousal rollover".

If you wish to give her the right to name a beneficiary, who will take at her death, your plan must accomodate that. Most plans don't. Many plan trustees believe that, if death of participant occurs after Required Beginning Date, they are REQUIRED to pay out the account balance in full at beneficiary's death, even if there is remaining "term certain" available. They're not, at least, not by anything in the IRC. The deferral period and MRD are not changed by the death of the beneficiary.

Of course, if death occurs BEFORE required beginning date, the 5 year default applies, as does the beneficiary's right to take over actuarial lifetime.

If wife is beneficiary as of Required Beginning Date, daughter's life expectancy won't be a factor in the Required Minimum Distributions from this account. It would only be a factor if your wife elected to treat your IRA as her own and named the daughter as HER beneficiary.

You might consider naming your wife as beneficiary, with the A Trust as contingent beneficiary, with the idea that wife can disclaim, if you die after RBD. That's often seen as the "best solution". However, it locks in wife's LE at Required Beginning Date, even after she disclaims in favor of the Trust. Moreover, on disclaimer, the advantages of spousal rollover are forfeited.

I STRONGLY suggest you contact a practitioner who REALLY understands QP Distribution planning.

John Olsen

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