Assignment of Death Benefits

[Dougsbpc]

Have a DB plan where spouse is 51% beneficiary and children from a prior marriage together are 49% beneficiaries.

The participant dies.

As part of a settlement agreement, the kids are assigning their 49% to the spouse.

ERISA's Anti-alienation clause usually deals with creditors. What about the assignment from one beneficiary to another?

[Guest Sieve]

Beneficiaries must take as beneficiaries before they can pass to another, unless they execute a disclaimer under IRC Section 2518 within 9 months after death. In that case, the interest passes directly from the deceased to the person who takes as a beneficiary as a result of the disclaimer (as if the first named beneficiary never was a beneficiary at all). For example, spouse as primary beneficiary can disclaim and the interest therefore will pass directly from the deceased to the contingent beneficiary (such as a trust). That's probably what you have here--kids disclaiming their interest, and it therefore passes directly from deceased participant to spouse. The regs under IRC Section 401(a)(9) indicate that a proper disclaimer will remove a person as a designated beneficiary for MRD purposes, and the remaining beneficiaries are then the only designated beneficiaries (Treas. Reg. Section 1.401(a)(9)-4, Q&A-4(a), especially the last sentence). Disclaimers have been held not to be an assignment or alienation and therefore not contrary to IRC Section 401(a)(13). (GCM 39858.)

[Dougsbpc]

Thanks Sieve

Really appreciate the information.

In this case it has been much longer than 9 months, it has been 18 months. The delay was caused by a dispute between the spouse and kids as to beneficial interests. After months of negotiations and mediation sessions the kids agreed to assign / disclaim their interests.

[Guest Sieve]

If there has not been a proper 2518 disclaimer, the kids will be considered as taking and then gifting the inheritance to the spouse. It may not, in fact, make a difference in the scheme of things, but it is just a different transacation from the typical disclaimer. I think it will cause the income tax on the distribution to be payable by the kids--which may be a good thing--rather than the spouse. And, since there was no proper disclaimer, the kids will continue to be designated beneficiaries for MRD purposes--but that has no impact on the distribution, I would suspect.