Please help me with my TSP Beneficiary Distribution

Submitted by Laura Clark on Tue, 2019-04-23 22:08

I am the executor for my sister’s estate. She left her TSP to my three children in Trust until they are 35. My eldest turned 35 in Feb 2018. TSP claims that since my daughter is already 35 she is no longer eligible for a distribution because at 35 the trust no longer exists. The trust only exists until the beneficiary is 35

To me this logic means when my sons turn 35 their trusts end and they will not receive their benefit? Another option is for the other two beneficiaries to disclaim their trust and TSP can distribute the funds directly to the estate. But is that a wise decision for them tax wise?

I don’t know where to go from here. I asked for a copy of the beneficiary form she signed. There is a paragraph that looks to be copied directly from her will that says the funds are to be divided equally between the three, in a staged distribution, starting at 26, then 30 and the remainder at 35. The first son will be 35 in October. Does that mean then all the funds go to the last beneficiary?



Submitted by Alan - IRA critic on Wed, 2019-04-24 00:17

  • Surely the TSP should have expanded their explanation beyond what you posted. Are you the trustee of the trust as well as executor? It sounds like you have submitted the trust info to the TSP so the TSP should have determined if the trust is qualified for look through treatment or not.  If the trust is qualified, you should be able to have either 2/3 of the plan balance transferred to an inherited IRA for the trust and 1/3 to an inherited IRA for the oldest daughter under the TSP “order of preference rules” or have the entire balance transferred to an inherited IRA for the trust after which you would either distribute the oldest daughter’s share to her or assign her share to an inherited IRA for her. So her share would end up in an inherited IRA either way, as long as the trust is qualified. If it is NOT qualified, then the results will differ with any stretch lost to the two under age 35. Of course, if the TSP interprets their provisions differently, I will defer to them as the experts. It will also help to know the age of your sister when she passed and the date of death.

Submitted by Laura Clark on Wed, 2019-04-24 14:00

Thank you so much for your response, I am very grateful.My sister was just 70, + 3 months. The DOD was11/10/2018. As you can tell I am way out of my depth here.  I will do some research to find out if it was qualified trust. The irony, which isn’t relevant, is that my brother was an estate planning expert recognized in his field but he also died 4 months earlier, he was the trustee and first executor, so he could have “fixed” this for me/us. (Shameless plug: Sega, 2016 NLJ Trailblazer, Veneble LLP, Adjunct Law Prof, GU, many other qualifications).

Submitted by Alan - IRA critic on Wed, 2019-04-24 18:17

  • Since your sister passed prior to her required beginning date for RMDs, there is no RMD due for 2018, but beneficiary RMDs for 2019 must be distributed by 12/31/2019 if the trust is qualified. All trust info required by the TSP must be submitted to them by a deadline of 10/31/2019, but due to uncertainty how the TSP will view the trust and the fact that the oldest beneficiary is over 35, the info should be sent ASAP.
  • If the trust is qualified, a direct rollover to an inherited IRA for the trust should be completed by year end. The question is how much of the TSP balance will be included in that rollover, all of it or 2/3 since the oldest beneficiary is no longer included in the trust.  This might take awhile for the TSP to sort out. With respect to the oldest beneficiary, my earlier post in error treated that beneficiary as HER daughter, not yours. Therefore, if the TSP does not distribute the full balance in a direct rollover to an inherited IRA for the trust, the remainder will probably be distributed to her estate, ie to you as executor. The same thing could apply to your son’s share if the TSP distribution does not occur before he reaches 35. If a check is paid to her estate, the amount will be taxable and will pass under her will. If no will, the intestate provisions of her state will determine where the proceeds go. Once the TSP arrives at a conclusion, it might be complex and required you to retain an estate attorney to sort it out.

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