Distributions to Small Estates by Affidavit Submitted by Decedent's Successor

[Guest rotfeast]

The facts...

DB Plan. Unmarried active participant X, a resident of CA, dies with no beneficiary designation on file. Plan defaults payment to X's estate. X's representative claims the death benefit would be X's only asset in the estate. Std practice for estate pmts is to request letters testamentary/administration, death cert, and TIN of estate.

However, under CA Probate Code s 13100, gross estates < $100k can avoid probate. The decedent's successor(s) may collect the decedent's personal property via notarized affidavits sent to each holder. It's not necessary to obtain letters of administration either.

X's rep has submitted a duly executed affidavit and wants direct payment. It's not entirely clear from the CA code whether "collection" means direct payment to successor or simply a release of the property to the successor, such as a check payable to the estate. Furthermore, X's rep claims that no estate is going to be established, thus no TIN.

The "right" thing to do?...

ERISA pre-emption...pay the estate and report it to the IRS under the estate's TIN, which must be obtained. Payment is > $600, so X's rep would also have to file Form 1041 for 2004.

Another pitfall is that without letters of administration, the plan is not protected from a fraudulent successor. Sure there's some protection under the CA statute (fraudulent payee is personally liable 3x amount to true payee), but ERISA pre-emption can be a double-edged sword: hold the plan to its terms and demand payment as true representative of the estate. Again, it would seem to me that the right thing to do is require letters of administration too.

Right result? I'd be interested in hearing how others handle this situation, as this is becoming more and more common.

[Guest GmcyWT]

Interested to hear how others are handling situations similar to the one described in the original post above (distributions where estate is not probated or where no executor/administrator is otherwise appointed).

401(k) plan has encountered a similar situation in which a beneficiary designation form provides that the deceased participant's account should be distributed to his estate. The form names an executor (Executor 1) who is not related to the deceased participant. Another executor (Executor 2) who is a child of the deceased participant has come forward to request distribution of the account -- Executor 2 has indicated that Executor 1 has stepped down due to incapacity.

Deceased participant's will has been admitted to probate as a "muniment of title" (Texas procedure by which a will is filed only to transfer title of the decedent's property, without the appointment of an executor). Thus, neither Executor 1 nor Executor 2 has been appointed or otherwise confirmed by a court order.

Instead, the court order simply admits the will to probate, and the order is intended to serve as evidence to transfer title of the decedent's assets to the recipients specified in the will (which provides for estate to be divided equally between two children). However, the beneficiary designation form provides for payment of 100% of the account to the estate -- not for payment 50% to child 1 and 50% to child 2 as per the will.

The plan has requested letters testamentary from Executor 2, but he indicates that no such letters testamentary will be provided since the estate is being settled as a muniment of title. Executor 2 requested that the 401(k) account be distributed directly to the two children per the will (including 50% to himself) using the SSNs of each child.

Plan intends to the follow the beneficiary designation form and distribute 100% of the account to the estate itself -- the executor may then handle distribution per the will. However, in the absence of letters testamentary, the plan cannot be sure that Executor 1 was indeed legitimately replaced by Executor 2. In addition, Executor 2 has indicated that he does not intend to establish an EIN for the estate, and he wants the account to be distributed to the estate using his own SSN.

Any thoughts on documentation that others have found acceptable in the absence of letters testamentary/letters of administration would be appreciated.

[FormsRstillmylife]

The 401(a)(9) regulations no longer require that will and trust documents be submitted with a beneficiary designation of the beneficiaries under a will or trust. Instead, a plan is permitted to treat as the "designated beneficiary" the persons identified under the terms of the will or trust in effect at the time of death as long as those persons are identified by September 30 of the year following the year of death.

We have been known to advise the plan administrator in the described situation to pay the 2 children 50/50 per the terms of the will since they have been clearly identified as the beneficiaries of the estate named in the plan forms. This gives the recipients the ability to transfer funds into inherited IRAs rather than receive fully taxable lump sums. This also avoids the whole state probate law issue. You pay under the terms of the plan (as interpreted under the 401(a)(9) regulations).

[mbozek]

GMCYWT:

This is a question which can only answered by counsel to the plan. If the plan does not have counsel then the plan must retain competent ERISA counsel regardless of the cost. Under US supreme court decisions (see Kennedy v. Dupont) plan is required to pay whoever is the designated bene under the plan. State laws are preempted.

[Guest GmcyWT]

By way of update, 401(k) plan referenced above convinced attorney for Executor 2 that muniment of title did not work under the circumstances. Attorney ended up converting the probate of the deceased participant's estate from muniment of title to administration with letters testamentary (including application to the court re: Executor 1 stepping down and being replaced by Executor 2). EIN has also been established for the estate. Plan will proceed with distribution once original/certified death certificate and letters testamentary are provided.