Death Distribution

[J Simmons]

The EE died without having affirmatively named a death beneficiary, and without spouse or children. The plan provides then that the EE's probate estate is by default the designated beneficiary.

The personal representative (PR) of the estate of the EE, one of 4 brothers of the EE, thought there would be an affirmative designation by the EE of the PR personally as the death beneficiary of the 401k benefits. He explained that if it goes through the estate, the 4 brothers share equally. Additional searches were made for a death beneficiary designation, but nothing turned up.

Distribution elections were prepared for the estate, as the default beneficiary and sent to the PR, with an explanation that again no death beneficiary designation by the EE has been found.

The PR turns back in the the Distribution Elections, signing them "as personal representative", but electing a rollover to an IRA entitled "IRA of [EE's name], deceased, FBO [PR's name], beneficiary".

It appears that the PR is attempting to have the benefits rolled over to himself, in his personal capacity, even though the default beneficiary is the EE's estate and the PR has explained to plan official that through the estate, it would go 1/4 each to the 4 brothers.

Any suggestions on how the plan ought to respond to the distribution elections turned back in by the PR?

[K2retire]

It is conceivable that a decision has been made to give 100% of this asset (and the related income tax liability) to one heir and fewer of the remaining assets as an offset. It is also possible that the will contains a specific bequest of this asset. The estate is required to file an inventory of assets with the court. If it includes the plan account (which it should since the beneficiary is the estate) the PR will be required to account to the court for how it was distributed.

Transferring the balance directly to an heir rather than to the estate is suspicious, especially based on what you've been told. If you want to go that far, you might require the PR to produce a court order showing that this asset of the estate is to be distributed to him personally before sending a check payable to anyone other than the estate. Such a request might even be a fiduciary duty to ensure that the plan assets are for the exclusive benefit of the participants and their beneficiaries.

[david rigby]

No lawyer I, but it appears that your description of the Distribution Election is not permitted by the plan, since it is not the estate. More specifically, it names a beneficiary that appears to contradict your other facts.

[Bird]

Any suggestions on how the plan ought to respond to the distribution elections turned back in by the PR?

"I'm sorry, but we cannot process the distribution as requested. The beneficiary is the estate and the plan must pay benefits to the estate."

Period. End of discussion.

[QDROphile]

I second Bird.

[Guest Sieve]

Q&A-16 of Notice 2007-7 discusses the potential nonspouse rollover of a plan benefit where a trust is the designated beneficiary, and how such a rollover IRA should be titled. Perhaps the same could be accomplished for an estate while estate distribution issues are being sorted out, as long as the estate (or the PR, FBO the estate) is named as the IRA's beneficiary (even though the estate cannot be a designated beneficiary and must take a distribution within the 5-year period of 401(a)(9)).

Actually, as I think about it, this probably is not permitted since the non-spouse rollover rules only apply if the non-spouse is a designated beneficiary (see IRC Section 402©(11)(A)), and an estate, as a non-individual, is not a designated beneficiary. So, hold those calls & letters . . .

But, I agree with Bird & QDROphile that under no circumstances should a rollover to an IRA be titled as suggested by the PR.

[jevd]

Is the amount (and the estate) small enough to qualify under the state's "small estate" probate law.