Disclaimer / Devolution -of Qualified Plan
Decedent named Trust as beneficiary of QP. No back up beneficiary listed and the QP’s “default” beneficiary is the surviving spouse.
Our plan was to have the Trustee of the Trust disclaim the Trust’s interest in the plan, so the spouse can be default beneficiary and roll into IRA and all the other goodies that come along with that!
However, my question:
1) Mich law allows a trustee to disclaim an interest in a trust. Once disclaimed, the disclaimed interest devolves as if the trust with respect to which the disclaimer was made never existed. There’s no direction (in trust document) as to what to do with the QP in the event of a disclaimer by the trustee.
Do I even need the spouse to disclaim anything in her individual capacity?
If I do have the spouse disclaim whatever interest she has, the disclaimed interest devolves as if she (the disclaimant) has predeceased the decedent. So, would the surviving spouse not be “alive” for purposes of being the default beneficiary of the QP?
Anybody run into this situation before?
Permalink Submitted by mk foss on Mon, 2008-12-01 22:05
I may not be totally understanding the question, but here are my thoughts.
If there is a qualified disclaimer, the spouse as default will become the beneficiary and can roll over the benefit. If the trust receives nothing from the Qualified Plan it would not need to have any provisions for dealing with the disclaimer.
If there is a partial disclaimer, the spouse becomes beneficiary of part of the benefit and the balance goes to the trust – that way you can add some assets to the trust and allow the spouse to rollover a fraction. The disclaimer needs to be for a fraction and not a dollar amount if this route is chosen.
In order for a disclaimer to be valid, it takes more than an action by the trustee. I believe that other trust beneficiaries must disclaim as well. In addition, you must follow whatever state law applies to disclaimers.
Mary Kay Foss CPA
Permalink Submitted by Rob Gilbreath on Thu, 2008-12-11 20:23
Let me try to clarify my question:
If I have the Spouse also disclaim (in addition to the trustee of the trust), I’m concerned that she will be treated under state law as having predeceased the decedent, thus, she is not “alive” for purposes of being the default ben of the QP.
My concern stems from this portion of state law disclaimer act:
“If a disclaimed interest arises under a will or testamentary trust, or by the laws of intestacy, and the decedent has not provided for another disposition of that interest if it is disclaimed or for another disposition of disclaimed or failed interests in general, the disclaimed interest devolves as if the disclaimant had PREDECEASED the decedent” – emphasis added.
So, if Spouse disclaims, is she “dead” as to being the QP’s default bene?
Thanks!
Rob Gilbreath
Attorney and Counselor at Law[/b]
Permalink Submitted by charles lore on Fri, 2008-12-12 01:58
If your goal is to roll over to surviving spouses ira as you have stated then why would you have her disclaim ? It would seem to defeat the rollover.
Permalink Submitted by mk foss on Fri, 2008-12-12 03:21
I think you’re reading too much into the law provision. If the spuose as a trust beneficiary disclaims, she had predeceased as a trust beneficiary. Then you would look to the cotingent beneficiary which is the spouse as an individual.
However, all trust beneficiaries need to disclaim not just the current income benefciiaries – it’s more important for them to disclaim because without the trust “wrapper” the spouse could remarry and entirely disinherit the beneficiaries of the trust.
Permalink Submitted by Rob Gilbreath on Fri, 2008-12-12 13:40
Thanks Mary Kay. I agree with your conclusions. One of your CPA colleagues whom I’m working with on this trust administration, wants to keep the Spouse “dead!”
I really appreciate all your help.
Regards,
Rob Gilbreath