401k Without a Beneficiary Designation

[guestdelta]

I am working with a client regarding an inheritance from a 401K plan that has some unusual moving parts. The client is the personal representative of his uncle's estate. The facts of the situation are as follows:

• Uncle dies in 2021 and has 401k assets at their employer with no stated beneficiary
• Wife of uncle (aunt) does nothing with the assets
• Aunt dies in 2024 and personal representative discovers Uncle's 401k assets at employer. 
• Uncle has a will that specifies that retirement assets upon his death will end up in a trust. Trust has named, identifiable beneficiaries.

Probate proceedings started on the Uncle because they were never done in 2021 with the court ordering the 401k assets to be paid to the trust. The PR wishes to go down the road of seeing if the situation would qualify for see-through treatment rather than the distribution being taxable to the trust and subsequent beneficiaries. Since the 401k company was not notified by October of the year following the Uncle's death, I believe this automatically disqualifies the assets (amongst other issues). 

[MoJo]

I look at this one step at a time.   When uncle dies, plan assets go either per a beneficiary designation *or* if none, per the terms of the plan.  I would guess that the spouse (aunt) is the bene under the terms of the plan - so those assets go to her - whether she exercise control over them or not.  Uncles will is irrelevant.  Only a valid beneficiary designation or the terms of the plan govern.  So, when aunt died, assets go per her bene designation (if any) or per the terms of the plan - and uncle, uncle's estate, and uncles trust have no bearing on aunt's distribution of her interest in the plan.  Aunt's representative (estate) or others would be entitled to those benefits - absent some fact not disclosed.  The court has NO JURISDICTION over the plan assets until paid, and cannot direct those assets to be paid to the trust, and whether it is a pass-through is really irrelevant..

[justanotheradmin]

I think the misunderstanding that many people have is that if the participant did not fill out a beneficiary form/designation, then the account is subject to the terms of a will, or if no will, then intestate rules. 

It isn't. 401(k) plans have default beneficiaries written into the governing plan documents, so that in the event a participant passes without a affirmative beneficiary designation, there is a default beneficiary. 

Typically that is something like spouse, children, estate, but it varies. Read the plan's document carefully.

Even if the estate is where the benefits are to go - they go there because of the beneficiary rules in the plan document, not because of the application of a will or intestate laws. So If everyone else pre-deceases the participant (not what we have in this post) the estate is the named default beneficiary under the terms of the plan, and gets the $$ because of that. 

[Gina Alsdorf]

Some 401(k)'s have default priority in the plan, some do not, some follow the intestate rules of the state.  You have to look at the specific plan document to understand how assets pass.