Disclaimer of plan benefits or IRA by spouse if a decedent is not a prohibited assignment or alienation.
Disclaimer of plan benefits
Situation 1: Employee E, a participant in a qualified retirement plan, died before separating from service and receiving benefits under the plan. E's husband, H, had not waived the joint and survivor annuity option under Sec. 417; therefore, H became entitled to a preretirement survivor annuity on E's death. Instead of receiving plan benefits, H executed a qualified disclaimer that met the requirements of state law and Sec. 2518(b). Sec. 2518(b) provides that a person making a qualified disclaimer of a property interest is deemed never to have received an interest in the property. As a result of the disclaimer, plan benefits otherwise payable to H became payable to a successor beneficiary.
Sec. 401(a)(13) provides that a trust is not a qualified trust unless it provides that benefits under the plan cannot be assigned or alienated. Regs. Sec. 1.401(a)-13(c) defines assignment and alienation as any direct or indirect arrangement under which a participant or beneficiary who would otherwise be entitled to plan benefits transfers right or interest in those benefits to a third party. However, because qualified disclaimer of plan benefits operated retroactively back to the participant's date of death, H was deemed to have never accepted or received plan benefits. Because H was never entitled to the plan benefits, it was not possible for him to assign or alienate the benefits.
Disclamer of IRAS
Situation 2: Husband H established an individual retirement account and an individual retirement annuity (IRAS). H died, leaving the interests in both IRAS to his wife, W. Instead of receiving the benefits, W executed a qualified disclaimer that met the requirements of state law and Sec. 2518(b). As a result, the benefits otherwise payable to W became payable to a successor beneficiary.
Sec. 408(a)(4) provides that an individual's interest in an IRA must be nonforfeitable. Sec. 408(b)(1) provides that a contract for an IRA must not be transferable by the owner. The logic that applies to a disclaimer of retirement plan benefits also applies to IRAS. Regs. Sec. 1.408-4(a)(1) provides that the payee or distributee of an IRA is generally taxable only on amounts actually received or distributed. Because W disclaimed the IRAs, she never became the beneficiary of the IRAs. Therefore, the distribution to the third party did not violate either Sec. 408(a) or (b)(1).
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|Author:||Patterson, Martha Priddy|
|Publication:||The Tax Adviser|
|Date:||Jun 1, 1992|
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