Pension Lump Sum Payable to Estate vs. Spousal Beneficiary IRA

Submitted by Justin Kensinger on Fri, 2020-04-24 18:58

A client came to us sick looking for help in distributing her pension to an IRA. We opened an IRA with her husband as primary beneficiary. She completed the distribution paperwork for the pension, with instructions for a lump sum to be deposited in her IRA. Election of no taxes being withheld. These instructions required her husband to sign a spousal waiver form. In the amount of time the instructions were sent in received and processed by the company, the client passed away. In working with the husband going forward we have opened him an IRA and requested the lump sum benefit to be deposited in his IRA.

The pension has notified us they will have to follow the instructions of the client and pay out the lump sum to the estate of the deceased. This will appears to be a fully taxable event. I am looking for any advice in this arena.

The only other option they have offered the husband is a 50% payout of the pension.



Submitted by Alan - IRA critic on Fri, 2020-04-24 20:28

  • It seems inconsistent that in the first case, they are bound by the submitted papers, but in the second option they are not. Neither one is beneficial for the husband. Even if her will made husband the sole beneficiary and executor, it would not stop the taxable distribution to the estate. This is where an estate inherited qualified plan is much worse than an estate inherited IRA, where the executor could have assigned the inherited IRA to the will beneficiary out of the estate without a distribution taking place. In this case, things are even worse if her will names other beneficiaries.
  • Distribution of this plan is a poor result for the husband. While unlikely to generate a positive answer husband may wish to consult with an estate attorney if there might be any case law allowing him to rescind the waiver he just signed due to the circumstances, while asking for more time to make his decision to put off the distribution check until the estate attorney responds.

Submitted by Bruce Steiner on Sun, 2020-04-26 21:00

  • I obtained a private letter ruling allowing a spousal rollover in a similar case (where the spouse was the beneficiary of the participant’s entire estate and the participant died before the plan sent the check to his IRA.  PLR 201514020:  https://www.irs.gov/pub/irs-wd/201514020.pdf ,
  • Bruce Steiner

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