Corporation or Trust as Beneficiary?

[Guest Hedwig]

A lump sum death benefit from a DB Plan is payable to the participant's designated beneficiary per the plan document. One participant has named a corporation and another has named a revokable living trust. Since this is not an annuity, I see no 401(a)(9) issues but are there other problems that I am not seeing?

[Bruce Steiner]

There are lots of possible problems. But rather than trying to describe them all, it would be more efficient if the person would say what he/she is trying to accomplish, and then to determine how best to accomplish his/her objectives.

[QDROphile]

Just be sure you aren't associated with the plan in any way before you advise people how to accomplish personal goals -- that is not a plan function. Then ask yourself whether you are adequately trained and licenced to help people with their legal or financial planning. The law is rough on overly helpful volunteers.

[Guest eafredel]

Hedwig,

First, you should determine whether the plan document limits the ability of a participant to name a trust or corporation as a beneficiary. (It is not unusual to name a revocable living trust as a beneficiary for a death benefit. It is a little more unusual to name a corporation, although the corporations may be charitable, educational or other entities that are 501©(3) organizations.)

Second, if the participant is married, you would have the issues of spousal consent. If the participant is not married, this should not be an issue (unless the participant later marries).

I would not get into advising participants about whether their beneficiary designations make good sense from an estate planning or tax planning point of view. On this score, I know there are arguments on both sides.