Can Estate Claim NUA?
The decedent has a significant amount of NUA in his employer plan and failed to name a beneficiary (the default is to the estate). Can the estate get the NUA treatment on the employer plan? If so, what is the process?
The decedent has a significant amount of NUA in his employer plan and failed to name a beneficiary (the default is to the estate). Can the estate get the NUA treatment on the employer plan? If so, what is the process?
Permalink Submitted by Jack Butler on Wed, 2008-10-29 13:57
I’ve attached the below rev. ruling – that’s the extent of what I could find on estate as bene in a retirement plan. What are your thoughts on capital gains being lost on NUA? Also, has there been anything further to make this ’69 ruling obsolete.
In Rev. Rul. 69-297, 1969-1 C.B 131, an employee died designating his estate the
beneficiary of his interest in a qualified profit-sharing trust. His interest in the trust,
which included appreciated securities of the employer corporation, was distributed to his
estate within one taxable year of his death. Rev. Rul. 69-297 holds that for the taxable
year in which the distribution was made, the estate is required by section 402(a) of the
Code to include in its gross income an amount equal to the cost or other basis to the trust
of the employer securities (thus excluding any net unrealized appreciation in the
employer securities), plus an amount equal to the cash and the fair market value of any
other property received as part of the distribution, minus the amount of the employee’s
contributions. Rev. Rul. 69-297 characterizes this income as income in respect of a
decedent under section 691(a), and holds that the estate is allowed a deduction under
section 691(c) for that portion of the estate tax attributable to the inclusion in the
decedent’s estate of the distribution from the employee’s trust. Rev. Rul. 69-297 further
holds that the net unrealized appreciation in the securities of the employer is includible in
gross income as income in respect of a decedent in the taxable year of their disposition by
either the executor or the residuary legatees in a taxable transaction and that the transferor
will be allowed the deduction provided under section 691(c) for any estate tax paid
attributable to the net unrealized appreciation.
Permalink Submitted by Alan Spross on Wed, 2008-10-29 21:18
Jack,
Thanks for posting your findings. I could not locate anything definitive on this of any age, but it seems consistent with both this ruling and other characteristics of Sec 402(e)(4), that the estate could indeed pass through the NUA benefit to the estate beneficiaries OR utilize it in the estate itself.
It seems more prudent however, for the estate to leave the plan in place and have the benefits assigned directly to the estate beneficiaries. Note that under the PPA, the non spouse rollover to an inherited IRA is only available to designated beneficiaries (not an estate), therefore the non NUA portion of any LSD will have to be distributed from the plan itself, rather than through an inherited IRA account. This, in itself might well negate any benefits of NUA as an LSD with no place to roll it to will create a large bubble of taxable income in the LSD year, and may inflate the beneficiary’s marginal tax rate on ordinary income. There is also the question of whether the current bear market has depressed the NUA to an impractical level.
The 1099R issued by the plan would indicate the total amount of NUA and the cost basis, and again it would seem simpler to have this issued to the beneficiaries rather than to the estate and have to mess with a K1 for the allocated shares.
And there is probably several other issues here that I have not contemplated as well……………