beneficiaries don't want the benefit

[Santo Gold]

This is probably something for an attorney to work out, but I would appreciate any thoughts or ideas.

A 401(k) plan participant passed away. She named her 3 sisters as beneficiaries in the plan. However, she also had a will, which stated that all of her assets are to go to the children of her 3 sisters.

Question #1: Does the will supercede the beneficiary form? Who gets the 401k account, the 3 sisters or their children?

After the participant's death, the 3 sisters want to waive their benefit. Their intention is to have their children receive the 401(k) assets.

Question #2: Can the sisters waive their benefits in the 401(k) Plan?

Question #3: If they can waive, does 401(k) balance get distributed pursuant to the will (the children)? If not, where does it go to?

Thanks

[Mike Preston]

1. No. The sisters, if the beneficiary designations are valid.

2. Yes, it is called "disclaiming". If the sisters disclaim their entitlement, they don't receive any monies from the plan.

3. Maybe. The benefit goes to the designated individuals (entities, whatever) that are specified in the plan as receiving the benefit in the case where there is no beneficiary. That might be the estate (in which case the will WOULD control), it might not.

Check my answers with a lawyer in your jurisdiction.

[K2retire]

I'm not a lawyer either, but I agree with Mike.

[MoJo]

I agree with Mr. Preston but would add a couple of cautions: First, "disclaiming" is a very technical process - with various deadlines and requirements that usually must be strictly adhered to (and consequences that range from invalidating the disclaimer to having tax consequences (both income and potentially gift) to the sisters if they improperly disclaim and the money does ultimately go to the children. Second, if the sisters disclaim, and the assets flow to the estate, then it will be taxable income (it's not rolloverable at that point) to someone (and I agree, the terms of the plan will govern, but in my experience, it would be normal for the assets to flow to the estate, rather than directly to the children of the intended beneficiaries). If the assets go to the sisters as named beneficiaries, they may be able to roll the assets over to a beneficiary IRA and preserve the tax deferral. Many moving parts here, and while their intentions may be munificent, there may be better ways to accomplish the goal (take the money and gift other, non-plan assets to their children, or take the money, and name their children as beneficiaries of their IRA's and wait...).

Talk to a qualified advisory!

[Santo Gold]

Who would be more of an expert on the process involved in disclamining the plan benefit: an accountant or an attorney?

Also, the plan document does not mention disclaiming. Does this have to be allowed in the document or is it something that can be done without being explicitly addressed in teh document?

Thanks

[lvena]

I am going through something similar right now. We were left a time share in a will (and I thought my in-laws loved their daughter and son-in-law) and we do not want it. I contacted an attorney and he will be drawing up a disclaimer so that we can refuse the time share.

As mentioned earlier, there are strict time limits, usually 9 months from the date of death, that the disclaimer needs to be submitted. See an attorney. It was the best money we ever spent.