Designation of Beneficiary form

[K-t-F]

Can a participant assign as the secondary beneficiare his children and literally put on the form "divided equally between my surviving children" or should s/he spell it out with each of their names ... i.e. "in equal shares to Bobby T. Jones, Suzie Orman, and Tom Brokaw"

[WDIK]

I certainly am not qualified to give any legal advice, but I am familiar with a beneficiary designation form that gives unnamed children as an example of an acceptable designation. The specific example uses the terminology "My children living at my death."

[mbozek]

What about the heirs of children who die before the IRA owner?Do they lose out? and what about adopted children? you ned to consult counsel.

[K-t-F]

I see your point. Then you are saying that you shouldn't leave it 1/3 to Bob, 1/3 to Suzie, and 1/3 to Tom... that if it proceeds to the secondary beneficiary and if there is more than one it should be left to a trust and let the trust deal with splitting it up to the surviving beneficiaries, or their heirs?

[mbozek]

The interest does not have to be left to a trust whose trustee who must be paid from the assets of the trust. The participant should consult with counsel to determine how the bene should be designated. Leaving an interest to a child who dies before the participant may result in the share going to the child's estate or being forfeited depending on state law. If the participant wants a deceased child's heirs to receive the child's interest then each child should receive such interest per stirpes.

[david rigby]

Recent discusssion: http://benefitslink.com/boards/index.php?showtopic=27038

[WDIK]

mbozek:

From a legal standpoint, what are the flaws in using the statment "Shared equally among my children living at my death" as a designation for the disbursement of the death benefit.

[mbozek]

It depends on how the law of decedent's estates in the state where the deceased lived would intrepret such a provision. It could exclude the heirs of a deceased child, may not include illegitimate children, violate community property laws, etc.

[Belgarath]

Mbozek - I'm truly not trying to be difficult on this, but I'm finding this rather confusing. (I should preface this by saying any such question, we would tell the Plan Administrator to seel legal counsel.)

Having said that, how do the heirs of a deceased child enter into this? If the plain language of the bene designation says the plan is to distribute it to SURVIVING children, isn't the plan legally obligated to pay only to surviving children? In other words, say I have children A, B, and C. My bene designation (perhaps unwisely) says to pay all plan benefits equally to my surviving children. If, at the time of my death, C has predeceased me, isn't the plan payout a simple 50/50 split between A & B? Just because C had children, shouldn't mean they are entitled to anything, should it? Wouldn't ERISA preempt state law? I would think these other considerations would come into place if, for example, the beneficiary was the estate. Then once paid out of the plan to the estate, then state law would govern?

Thanks in advance!

[mbozek]

Making a determination of who is a bene is a fiduciary decision. How is the PA to determine who are the deceased's surviving children if they are not named? What if the deceased has remarried and and has a new family? What if an illegitimate child appears after all of the benefits are paid out to claim a share? The plan admin needs to obtain a death cert to confirm that a bene is deceased and conduct a search to determine if there are any missing children. While the PA is not required to follow state law there is usually nothing in the plan doc that provides any guidance on how to determine a bene so state law is a good fall back. In estate planning I always review the clients bene designation to make sure that all benes are designated by name, address, relationship and per stirpes. The PA can always spend money and file a complaint in interpleader to have a ct determine who the benes are. If the estate is the bene then all the PA has to do is wait for the plan rep to apply for the benefits and present the ct order.

[Belgarath]

See, this is precisely why I refer them to an attorney! Thanks for the information - this helps to clear it up for me.