Beneficiary dies - Does beneficiary's spouse receive death benefit?

[Guest CHRISTA]

I have a case in which the participant died, his wife had already passed away, and he's left his 5 children as the beneficiaries. One of those children had also previously died, so should that child's spouse receive his share of the money or would the money only be split amongst the 4 surviving children?

[Mike Preston]

It is highly unlikely that the spouse of the deceased child would be entitled to anything. However, if the deceased child had a child, then you would need to determine whether the original beneficiary designation was "per stirpes" or "per capita." My document indicates that "per stirpes" is the default election, but that it can be over-ridden via a beneficiary designation that states "per capita."

If the beneficiary designation was "per stirpes" (whether by election or by automatic provision of the underlying document) and the deceased child had an heir (what is legally known as the child's "issue" - child or grandchild, etc.) then the deceased child's share would be payable to the heir (or heirs) of that individual.

Here's a website with some iinformation on the terms:

http://www.recer.com/bwh/dostirpe.htm

[Guest LVanSteeter]

I would also check the plan document and the recordkeeping agreement. In many cases, the deceased portion is divided among the surviving beneficiaries (unless per stirpes/per capita has been specified).

Good Luck!

[mbozek]

Christa- There is no uniform answer. Need to look at the relevant documents- e.g., beneficiary designation to see how benefits were divided- per stirpes or per capita; also read the IRA custodial account agreement to determine who receives assets in the case of multiple beneficaries or under the default option. Depending on the state in which the decedent lived you may also need to review the will to see if there is any other instruction to distribute IRA assets. Finally you may need to review any applicable state laws that may apply.

Real question is how much money is involved? If it is a small amount then the parties should be able to reach a voluntary settlement that will permit the distribution of the funds. In cases like this the IRA custodian will not make a distribution of the assets unless all potential beneficaries consent to the distribution in writing and provide a waiver of liability of the custodian.

I usually get the parties to settle by reminding them that if they do not voluntarily agree to a settlement then they will have to hire their own lawyers to litigate the matter who will be paid out of their IRA proceeds as well as pay for the cost of the lawyers for the custodian who will be reimbursed from the IRA proceeds.

[Mike Preston]

This is 401(k) plan thread, so the likelihood is that this is a distribution from a 401(k) plan and not an IRA. If that is truly the case, and there is a controversy, the plan can not charge the beneficiaries directly for legal fees incurred.

[mbozek]

Mike: The plan is not charging beneficaries. Plan/trustee can initiate interpleader in federal court and name all beneficaries as defendents. After all parties have been served the plan/ trustee can deposit the participant's account balance with the court and asked to be dismissed from the case. The plan can ask the court to award legal fees for costs in its discretion. Since the court is awarding the fees under rules of federal procedure there is no violation of ERISA. Otherwise, the plan (or in a DC plan the participants) must eat the cost of this kind of litigation.

Only other alternative is for the plan to wait to be sued by a beneficiary and counter claim with an interpleader.