Plan participant dies - has no designated beneficiary and no will

What would happen to someone's funds who passes away, has no spouse nor children and no other designated beneficiary?  We assume the plan (not our plan) and state laws of Indiana would say the account goes into the estate.  It is $1.5 mil.  She does have 2 brothers (one is our 1040 client.)  We believe a court will decide the brothers will get the money.  And if so, the question then becomes, can they roll to an IRA?  Doubtful.  If they can when would it have to be distributed?  The decedent was not RMD age. We don't know the terms of the decendent's plan.  She worked for the VA and so it is a govt plan.

Any comments are appreciated.  We are not offering our 1040 client any specific advise.  This is mostly just for our general education.  Of course the main lesson is - have a designated beneficiary and a will.

Every plan document I've ever seen outlines what happens if there is no beneficiary. So, the Plan Administrator would follow that guidance and pay whomever it states to pay. Where it goes from there is likely covered by other laws and regulations.

If a survivor or death benefit (if any) results from the decedent’s service as an employee of the U.S. Department of Veterans Affairs, consider that Federal law might govern the benefit, and that the statute or rule might be unfamiliar to one who lacks experience with benefits for U.S. government employees.

Right, and don't assume that a court (or the decedent's will) gets to decide.  The plan provisions must be followed first.

On another matter, if the $$ goes to the estate of the deceased beneficiary, keep in mind that the estate is not a natural person and (therefore) cannot open (or roll to) an IRA.

As others have said, read  the document, the answer is probably there.

I'd be surprised if the answer was not "THE ESTATE" in this case but that's just a most likely guess on my part and not legal advice.

If she worked for the VA and her plan is a Government Plan it must have been a TSP account. It not it would be nice if you would identify the exact Plan. See page 1 of the attached TSP pamphlet that provides: 

"Your Beneficiary Designation
Order of Precedence. If you die with a balance in your TSP account and you did not designate beneficiaries for that account, the account will be distributed
according to the following order of precedence required by law:
1.    To your spouse
2.    If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
3.    If none, to your parents equally or to your surviving parent
4.    If none, to the appointed executor or administrator of your estate
5.    If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death"

Here is another source. https://www.tsp.gov/bulletins/14-4/

See  5 U.S. Code § 8424(d) and (h).

If it's not a TSP, get back to me. 

David

TSP Death Benefits.pdf

I neglected to quote another important paragraph from page 1 of the TSP Death Benefit Booklet attached to my first response.  

"As a participant in the Thrift Savings Plan (TSP), you will likely accumulate a sizeable amount of money in your TSP account over the years. One of the things
you need to think about now is, “Who will receive the money in my account when I die?” This may be an uncomfortable question, but it is very important not to put
off decisions regarding who should receive your money. You need to take the time to ensure that your money goes where you want. You cannot rely on your will,prenuptial agreement, separation agreement, property settlement agreement, or court order to specify who will inherit your TSP account because we do not use any of these documents to distribute death benefit payments."

Since the participant died before her required beginning date and assuming that the estate is the beneficiary (as is almost certain based on what you say), the account balance must be distributed by the end of the fifth calendar year following the year of the participant's death.  If my understanding of TSP is correct, that requirement will definitely be satisfied, because distributions to non-spouse beneficiaries are made within 90 days after the participant's death; there is no option to postpone the distribution.

In the Order of Precedence quoted above, note the important first word: "If".  Thus, a participant could name sibling(s) as beneficiary, if affirmatively elected in advance (and subject to a likely spouse default if there is a spouse).  It's not a bad idea to remind participants, every now and then, to review their beneficiary designation(s). 

49 minutes ago, david rigby said:

In the Order of Precedence quoted above, note the important first word: "If".  Thus, a participant could name sibling(s) as beneficiary, if affirmatively elected in advance (and subject to a likely spouse default if there is a spouse).  It's not a bad idea to remind participants, every now and then, to review their beneficiary designation(s). 

Absolutely.  The estate is the worst possible beneficiary, particularly of an account as large as this one.  The heirs will have to wait until probate, which can be slow and expensive, is finished before getting their money and, as already noted, will not be able to defer taxation through rollovers.

fmsinc - David thank you it was a TSP.

Tom

14 hours ago, Tom Veal said:

Absolutely.  The estate is the worst possible beneficiary, particularly of an account as large as this one.  The heirs will have to wait until probate, which can be slow and expensive, is finished before getting their money and, as already noted, will not be able to defer taxation through rollovers.

Yup

The estate will have to get an EIN and file a tax return on its income most likely also.  An estate is the worst possible beneficiary.