Surviving Spouse and Disclaimer of Benefits

[mal]

Surviving spouse is receiving a small QJSA benefit from a defined benefit plan. She is elderly and needs to go into a nursing home, but the  pension pushes her past an income limitation-- making the cost of the nursing home very expensive. She would like to disclaim the retirement benefits, but we don't see an avenue to allow for this to occur.

Disclaimer- Her husband died longer than 9 months ago and she has been receiving monthly benefits since his death.

Assignment of Interest- She could assign her interest under 1.401(a)-13(e) but the monthly benefit would still be considered taxable income.

Cash-Out- Plan does not allow for any type of lump-sum unless present value is less than $1,000.  Current funding status would prohibit large lump-sum benefit payments anyway.

Any other ideas would be appreciated.

[david rigby]

We've seen several similar questions.  Apparently, it's related to Medicaid eligibility.  I suggest you Search for prior Q&As, probably using the search term "Medicaid".

[Peter Gulia]

Your query involves two questions:

 

Assuming the plan allows a beneficiary to disclaim her benefit, what effect would this individual’s disclaimer have on her eligibility for whichever assistance she seeks?

 

Under what conditions does the plan allow a beneficiary (and, if more restrictive, a surviving-spouse beneficiary) to disclaim her benefit?

 

On the first question, the beneficiary might want her lawyer’s advice.  The beneficiary might no longer consider a disclaimer if she learns it would not improve her eligibility for assistance (or that keeping the retirement plan’s annuity would not weaken her claim for assistance).

 

You mention the participant died more than nine months ago.  That might mean a disclaimer is ineffective for one or more Federal tax purposes.  26 C.F.R. § 25.2518-2(c)(1)(i).  But does the plan’s governing document restrict a disclaimer to one effective for tax purposes?

 

In my experience, many plans’ governing documents are ambiguous about what conditions a disclaimer must meet for the plan’s administrator to rely on the disclaimer.

[AKconsult]

yes, this is a Medicaid eligibility issue, and those rules vary by state.  However, there are usually options whereby an individual may transfer an insurance contract or annuity contract to a funeral home in order to pre-plan/pre-pay for a funeral.  That transfer is irrevocable and in my experience will remove the annuity income from the individual's countable income for Medicaid eligibility determination.  However, I strongly advise that this individual needs to consult with an elder law attorney in her state.  That attorney can help the individual implement a "spend down" plan to get her eligible for Medicaid, including figuring out how to reduce her income.