Tricky Distribution Issue

[Molgilny89]

Curious how other people might be handling a situation we keep coming across. In these scenarios, a participant dies without a beneficiary so it defaults to the estate. The Account balance is relatively low (usually under $5k) and no one is willing to accept the benefit because either (1) the cost to probate the estate exceeds the value of the benefit and the state does NOT allow small estate affidavits, or (2) the estate has already been probated (generally making it ineligible for small estate affidavit) and the cost to reopen the estate exceeds the value of the benefit.  How do we get these assets distributed without subjecting the plan to significant risk?

[CuseFan]

Not sure about retroactive application, but how about amending the plan for a defined hierarchy of beneficiaries when none is named or predeceases the participant? Then make the estate last in line, such as spouse, children, parents, grandchildren, grandparents, siblings, and then the estate? Could even stretch to aunts/uncles and nieces/nephews but those would be more difficult to track as they are usually not named in an obituary.

[Peter Gulia]

A plan’s administrator might want its lawyer’s advice about these and other points.

If no one has submitted a claim, there might be no claim for the administrator to approve or deny.

Absent a claim, there might be no need to consider an involuntary distribution until the plan’s applicable required beginning date approaches.

Depending on the plan’s provisions and the factual circumstances, that time might be about ten years after the participant’s death.

[rocknrolls2]

However, building on what Peter has so artfully stated, if, in fact, the estate is the default beneficiary, then you are looking at the end of the calendar year which is the fifth anniversary of the participant's date of death to liquidate the entire account balance.

[Molgilny89]

On 5/25/2023 at 3:30 PM, Peter Gulia said:

A plan’s administrator might want its lawyer’s advice about these and other points.

If no one has submitted a claim, there might be no claim for the administrator to approve or deny.

Absent a claim, there might be no need to consider an involuntary distribution until the plan’s applicable required beginning date approaches.

Depending on the plan’s provisions and the factual circumstances, that time might be about ten years after the participant’s death.

A lot of these are dormant accounts that have been sitting on the books for 10+ years after the death of the participant. What is the best approach to take once the RBD has come and gone? 

[Peter Gulia]

I have no solution (beyond maintaining the accounts under the plan).

[Paul I]

If the estate is the beneficiary of last resort (there is no remaining beneficiary next in line according to the plan document) and the executor refuses the accept the payment and formally refuses to accept the benefit, could the plan administrator then have discretion to decide who gets the payment or possibly forfeit the balance?

[MoJo]

First, I find it hard to believe that 1) a state does not have way to deal with small asset states (we have a database of them, and I believe - I haven't checked - every state has some mechanism; and 2) every state has a "summary" procedure for reopening an already closed estate for after discovered assets - and it usually involves a single page filing along with a copy of the check (payable to the estate) with a second filing indicating the money was distributed per the will/statute of descent and distribution.  Literally, My wife (a non-lawyer) did this six time in the last three years (in Ohio) because refunds of various pre-paid expenses trickled in for her parents (who died a year apart).  These were small estates, but the process is similar for after discovered assets when a full administration has occurred.  We routinely deal with heirs who 1) first think we're trying to scam them; and 2) second, just need a little hand-holding to get it done (often we give them the cite to the process at the local probate court, or the sample affidavit if the court provides one.

Absent that, we've also been know to "inform" the parties (especially the estate administrator/executor) that unless action is take, we'll call the probate court and let them know that the "fiduciary" of the estate (if there is one) won't accept estate assets (a big no-no in the eyes of the court), and if push comes to shove, you could also figure out if the probate court has a way to interplead the money and hand it over to the clerk.  In most cases, the job gets done.

[Peter Gulia]

While my observations were grounded on Molgilny89’s stated assumptions, MoJo describes some methods a plan’s administrator or trustee might evaluate.