401k –wife did not name new bene
Jerry died and named his wife as bene and 3 kids as contingent bene’s. After his death his wife left the plan in the 401k and started taking her RMD’s. She never named the 3 kids as bene’s. She has now died. Is there any way for this plan NOT to be left to estate. Would the fact that Jerry (husband) had named kids as contingent help in this matter. We have not seen paperwork from fidelity yet but believe the 401k plan was tfd to wifes name 10 years ago when husband died. She was 75 when she died this year. Thx
Permalink Submitted by Alan Spross on Fri, 2012-08-17 18:03
The interest of contingent beneficiaries is extinguished upon death of the owner if the named beneficiary does not disclaim.
In this situation, the plan provisions need to be carefully reviewed to determine the default beneficiary provisions. Most likely it will be her estate, but plans can and do have varying provisions so this needs to be checked out.
If her estate is the default beneficiary, her will determines where the funds go. RMDs for the beneficiaries will be based on wife’s remaining life expectancy. Beneficiaries should establish separate inherited IRAs and transfer their interests to these IRAs so the estate can be closed in a reasonable time. But all their RMD divisors will be the same, based on wife’s remaining life expectancy.
Permalink Submitted by Christopher Combs on Sat, 2012-08-18 19:59
“The interest of contingent beneficiaries is extinguished upon death of the owner if the named beneficiary does not disclaim.”
Does this apply to IRAs as well as 401(k) plans?
Jack and Jill have each other named as primary beneficiaries. Jack’s children (from previous marriage) are his contingents. Jill’s children (from previous marriage) are her contingents.
They asked, “What would happen if we inherited each other’s IRAs and made no changes to the beneficiary forms?” Their intent is to have something more than just a handshake agreement which would ensure that their respective children eventually get the money they are set up to receive now as contingents.
I mentioned that they could complete new forms at that time but their attorney is concerned that if they are incapacitated they may not be able to complete this.
Thank you in advance for your response.
Permalink Submitted by Alan Spross on Sat, 2012-08-18 23:25
Yes, upon the death of the IRA or plan owner, the contingent beneficiaries do not receive anything if the primary beneficiary is alive and does not disclaim their benefit. Their interest does not continue unless the primary beneficiary names them as beneficiaries of their own interest.
In the situation you outlined, there is no guarantee that the surviving spouse could not change the beneficiary solely to their own children and the deceased’s children could get nothing. A trust named as the direct beneficiary instead of the spouse could allow the surviving spouse to receive lifetime income from the IRA with the remainder beneficiary being the children of the first spouse to die. Withdrawals to the surviving spouse could be limited to the earnings, the RMD or some other measure.
Here is an article by Bruce Steiner on trusts as IRA beneficiaries:
http://www.kkwc.com/docs/AR20041209132954.pdf