Deceased Participant

[Guest Twinky]

We recently took over a plan that has a deceased participant. The participant has been deceased for 10 years.

The client informs me that they have, on several occasions, tried to get the parents (bene's) to take the money out of the plan.

Can we either treat this participant as a "missing participant" and forfeit the money until such a date when a claim is made, or force the parents (bene's) to take the money?

Had this been addressed YEARS ago it would be a non-issue since the threshold was $5,000 back then. However, the vested balance is just over $2,000 and the plan has a "force out" threshold of $1,000. Other than amending the plan to change the threshold and do a rollover, what are our options?

Thanks so much!

[PLAN MAN]

You must follow the terms of the plan document with regards to distribution to a non-spouse beneficiary. If the plan provisions do not require a distribution after a particular time following the participant's death, then you cannot force the distribution. If the beneficiaries are known to the plan administrator, then there is not a "missing participant".

[Guest Twinky]

Thank you for your response.

This is somewhat the question though. After several attempts and no response, the bene's may have moved or are now deceased as well.

Would this constitute a missing participant?

Thanks.

[masteff]

Ah, I missed that nuiance too (that it's the bene's who are now missing). I'd say yes, but you need to take the normal reasonable steps to try to reach them (including using the IRS's service to send them a letter asking them to update their contact info w/ you).

[Guest beppie_stark]

Shouldn't the account have been payable as a Minimum Required Distribution 5 years after the participant's death?

[RCK]

I agree. Rereading the initial post, it seems like the beneficiaries are not lost--they won't take the money. If that's the case, they have to either disclaim the benefit in writing or you cut them a check. And if they disclaim it, you move to the next step in your plan's sequence (for our plans its the participants spouse, then children, then parents, then siblings, then estate.

[jevd]

I agree. Rereading the initial post, it seems like the beneficiaries are not lost--they won't take the money. If that's the case, they have to either disclaim the benefit in writing or you cut them a check. And if they disclsim it, you move to the next step in your plan's sequence (for our plans its the participants spouse, then children, then parents, then siblings, then estate.

A qualified disclaimer must be within 9 Months of date of death. Account owner died 10 years ago. Does your plan accept non-qualified disclaimers? If so, how do you get around Gift Taxes for amounts over the annual limit?

[RCK]

jevd is correct--the disclsimer had to be done within 9 months.

So, jevd, what it the solution?

[Guest mjb]

Failure of beneficiary to disclaim w/in 9 months doesnt prevent party from disclaiming at a later date- It only means that the transfer is subject to fed gift tax which allows each taxpayer to exempt first $1,000,000 of gifts from gift tax. Why would plan care about whether disclaimer qualifies under gift tax since plan is not responsible for paying gift tax or reporting gift to IRS?

[jevd]

If trustee doesn't report, who does? The taxpayer? I realize this isn't the best case and I agree that the trustee shouldn't be liable to report the gift.

I just believe it puts the trustee in an uncomfortible situation. Does the trustee notify the beneficiary that a non-qualified disclaimer has other tax implications and they should seek advice from their tax professional?

Some custodians/trustees will not accept a non-qualified disclaimer.

I'm not sure what the correct procedure should be.

What do the attorneys have to say?

PS . I believe the limit is $ 11,000

[Guest mjb]

Donor making the gift is required to file form 709 with the IRS by april 15 of the year after the gift is made if gift exceeds 12,000 annual exclusion (24,000 if joint gift by H &W). Amount of gift in excess of 12/24k is eligible for $1M exemption. Beneficaries would need to be told to consult with a tax advisor.

[jevd]

Thanks MJB,

I wasn't aware of the exemption. Not my area of knowledge.

[Kimberly S]

Definitely need to consult a tax advisor because the exemption is cumulative over a lifetime -- if they've previously used part of it the limit will be lower.

[Guest mjb]

not too many people make life time gifts of more than $1M and even fewer know that they must file gift tax return for any gift over 12K to a non spouse. Have you ever tried to convince a client that they should pay an advisor to file a gift tax return when they do not owe any tax and the IRS has no record that a taxable gift was made???

[Guest Twinky]

Wow, I really opened a can a worms huh? I guess the question was more complicated than even I thought it would be.

I sure appreciate ALL your knowledgable advice everyone! It has been extremely helpful.

Thank you all so much!