Disclaimer of 401K interest will go to the estate.
Ex-husband (age 42) died having never changed his beneficiary designation on his 401(k) plan. He never remarried. Ex-wife is primary beneficiary and there is no contingent named. If ex-wife disclaims the 401(k) interest, the plan says it would go to his estate. Ex-wife would like it to go to their minor daughter, age 9, who is the deceased’s sole heir. Original will cannot be located and it is believed he never updated it after the divorce. A [b]copy[/b] of the pre-divorce will leaves everything to spouse, then to children, in trust until age 25 (50%) and 30 (remaining balance). Due to the divorce the spouse is out, as if predeceased, with regard to inheriting under the will. Intestate succession leaves the estate to the daughter which is what the dad intended. So the child is sole heir and a guardian will be appointed to handle the assets for her. In fact, the attorney believes the probate court will be inclined to have the estate go into a testamentary trust f/b/o the daughter as indicated in the copy of the will, even though the original cannot be located. The ex-wife may even be appointed PR, guardian and trustee, either alone or along with a family member.
Is there any way, if the ex-wife disclaims and the 401(k) balance defaults to the estate, for the benefits to be “rescued” from the estate and re-directed to a beneficiary IRA for the daughter instead? The plan has been updated to allow non-spousal beneficiaries to transfer the assets to a beneficiary IRA. If this is possible, would lifetime stretch-out be available or would the entire balance have to be withdrawn within 5 years?
Thanks in advance and let me know if I should be considering anything else or if other facts are needed!
Permalink Submitted by Anonymous (not verified) on Fri, 2009-02-20 22:10
The provisions allowing a “rollover” to a nonspouse beneficiary only apply to an individual or a qualifying trust. If the estate is the beneficiary under all of the documents, you probably cannot qualify for that relief.
If the trust for the daughter under the will is treated as the beneficiary, a rollover may work. That testamentary trust may fit the definition of a “see-through” trust, which is what you need. Between the plan administrator and the probate court, you’d need to see what procedure (if any) would allow the trust under the will rather than the estate to be the beneficiary.
Permalink Submitted by Anonymous (not verified) on Fri, 2009-02-20 22:50
You said that the default is the estate. So if the ex-wife disclaims, it goes to the estate.
If the Will cannot be found, there is a presumption that it was revoked. But it is sometimes possible to overcome the presumption and probate a lost Will. The attorney handling the estate can give you an idea as to whether it may be possible in this case. It would probably be better to have the assets go to the daughter in trust under the lost Will than outright (which would necessitate a guardian, and which would give the daughter control at age 18 or 21).
But that still doesn’t get you a designated beneficiary, to get out from under the 5-year payout.
Another possibility, if it won’t create additional estate tax in the ex-wife’s estate, is for the ex-wife to take the benefits, stretch them out over her life expectancy, and use the distributions each year (net of income tax) for the daughter, or give the distributions each year (net of income tax) to the daughter (or to a custodian for the daughter).