Existence of Trust Beneficiary

[DJL]

Thank you for this Forum. I have been a loyal follower, but have never posted. I work for a third-party administration firm. My question involves an issue that has occurred for one of our client plans.  I have searched for this topic on this Forum, but have not been able to find any prior threads. If there are other relevant threads, I would appreciate your reference to therm.

Have you had experience with determining whether a trust is in existence when a death benefit becomes payable from a 401(k) plan?

FACTS:  In 1989, a participant named his parents' Family Trust as the primary beneficiary of his 401(k) plan account (and a non-family member as the contingent beneficiary). The participant was the sole beneficiary of the Family Trust upon the death of the last of his parents.

In 2016, the participant set up his own Revocable Trust, but did not change his 401(k) plan beneficiary to be his Revocable Trust. The participant passed away in 2019.  

The trustee of the Revocable Trust has filed claim for the 401(k) plan death benefit.  Since this is not the trust named as beneficiary, the Plan asked for a copy of the Family Trust. The trustee has provided a copy of the Family Trust, but stated that the Family Trust no longer exists. There is no language in the trust documents connecting one to the other. The Plan has denied the claim, on the basis that the Family Trust no longer exists.

The Plan has now received a letter from the attorney representing the Revocable Trust, who has argued that the Family Trust still exists. The attorney has cited 26 CFR 1.641(b)-3 as authority that the trust continues. This regulation deals with termination of trusts in relation to federal income taxes. There is no reference to California trust law or any case law.

The Plan is now faced with determining whether the Family Trust still exists for purposes of paying the death benefit. I welcome any thoughts you care to share.

[Larry Starr]

6 hours ago, DJL said:

Thank you for this Forum. I have been a loyal follower, but have never posted. I work for a third-party administration firm. My question involves an issue that has occurred for one of our client plans.  I have searched for this topic on this Forum, but have not been able to find any prior threads. If there are other relevant threads, I would appreciate your reference to therm.

Have you had experience with determining whether a trust is in existence when a death benefit becomes payable from a 401(k) plan?

FACTS:  In 1989, a participant named his parents' Family Trust as the primary beneficiary of his 401(k) plan account (and a non-family member as the contingent beneficiary). The participant was the sole beneficiary of the Family Trust upon the death of the last of his parents.

In 2016, the participant set up his own Revocable Trust, but did not change his 401(k) plan beneficiary to be his Revocable Trust. The participant passed away in 2019.  

The trustee of the Revocable Trust has filed claim for the 401(k) plan death benefit.  Since this is not the trust named as beneficiary, the Plan asked for a copy of the Family Trust. The trustee has provided a copy of the Family Trust, but stated that the Family Trust no longer exists. There is no language in the trust documents connecting one to the other. The Plan has denied the claim, on the basis that the Family Trust no longer exists.

The Plan has now received a letter from the attorney representing the Revocable Trust, who has argued that the Family Trust still exists. The attorney has cited 26 CFR 1.641(b)-3 as authority that the trust continues. This regulation deals with termination of trusts in relation to federal income taxes. There is no reference to California trust law or any case law.

The Plan is now faced with determining whether the Family Trust still exists for purposes of paying the death benefit. I welcome any thoughts you care to share.

Well, the "plan" shouldn't be doing anything except hiring a good ERISA attorney who also has trust experience (or someone in his/her firm that can advise). This is not an issue for amateurs.  And remember, it can always be paid in an interpleader and the judge can figure out if it is payable to the contingent beneficiary or not (which is really the issue that the plan needs to deal with).  This assumes the contingent is still alive (is he/she?).

[david rigby]

1 hour ago, Larry Starr said:

Well, the "plan" shouldn't be doing anything except hiring a good ERISA attorney who also has trust experience …

The TPA has probably been asked the question as a means of saving the plan from encurring legal fees.  It's nice of you to want to help but it's not your expense.   Don't fall for it.

[DJL]

Thank you, Gentlemen.

Mr. Starr--the contingent beneficiary is alive. We have suggested that the Plan sponsor consider having a court make the determination.

Mr. Rigby--yes, we have already notified the Plan sponsor that we cannot make this determination.