Please help with my inherited TSP question
My father inherited a TSP as a non spouse beneficiary and took a full payout (before he passed away shortly after) I am trying to determine if he was a direct beneficiary named by her account or is it possible that her trust who was able to keep a TSP open shortly after her passing could have designated him a beneficiary after they gained control and have a check issued directly from TSP in his name.
This answer would determine if there is an issue with the trust that stated everything was to be sold and he was to inherit X amount of money from that. If he was a direct beneficiary on her account then it wouldn’t go through the trust and we would be owed the money named on the trust. I guess my question is if you have a TSP can you issue a payment to a non spouse beneficiary directly to that persons name at any time?
Thank you!
Permalink Submitted by Alan - IRA critic on Sat, 2019-03-16 00:32
There is no information on the TSP website explaining how the TSP handles estate and trust beneficiaries. For a trust beneficiary, the IRS has consistently approved assignment of the inherited plan to trust beneficiaries, but some plans will not comply with such a request. Therefore, it is not clear whether your father was named as a designated beneficiary or a trust was named and the TSP assigned to him as a trust beneficiary. Since the TSP moves rather slowly but is very thorough, a fast distribution suggests it is more likely that he was named as a designated beneficiary. It is unlikely that a trustee of a trust could change the trust beneficiaries after the participant’s death as that would be fraud and the trust would have to be submitted to the TSP. If a trust was named as beneficiary, a distribution could have been made to the trustee of the trust and passed through the trust to trust beneficiaries, which the TSP prefers to do when a trust or estate is named as the beneficiary.
Permalink Submitted by Amoreena Gionet on Sat, 2019-03-16 19:21
It was not a fast distribution because the original owner of the tsp just turned 70 1/2 and failed to meet what was required. The trust was able to show that she passed away very shortly after the deadline and that was why she didn’t fulfill her responsibility and able to get distributions. Can you clarify if a distribution was made to the trustee of the trust and past through the trust to trust beneficiaries that a check would come to my father directly from TSP even though he wasn’t named a designated beneficiary on the TSP or would it be more likely a check would be issued to the trust and they would have to distribute via the credit union in the trusts name for anyone who was named in the trust but not a direct benefit in the TSP?
Permalink Submitted by Alan - IRA critic on Sat, 2019-03-16 23:43
Permalink Submitted by Amoreena Gionet on Sat, 2019-03-16 22:50
§ 1651.14 How payment is made.(a) Each beneficiary’s death benefit will be disbursed pro rata from the participant’s traditional and Roth balances. The payment from the traditional balance will be further pro rated between the tax-deferred balanceand tax-exempt balance. The payment from the Roth balance will be further pro rated between contributions in the Roth balance and earnings in the Roth balance. In addition, all death benefitswill be disbursed pro rata from all TSP Funds in which the deceased participant’s account is invested. All pro rated amounts will be based on the balances in each TSP Fund or source of contributions on the day the disbursement is made. Disbursement will be made separately for each entitled beneficiary.(b)Spouse beneficiaries. The TSP will automatically transfer a surviving spouse‘s death benefit to a beneficiary participant account (described in § 1651.19) established in the spouse‘s name. The TSP will not maintain a beneficiary participant account if the balance of the beneficiary participant account is less than $200 on the date the account is established. The Agency also will not transfer this amount or pay it by electronic funds transfer. Instead the spouse will receive an immediate distribution in the form of a check.(c)Nonspouse beneficiaries. The TSP record keeper will send notice of pending payment to each beneficiary. Payment will be sent to the address that is provided on the participant’s TSP designation of beneficiary form unless the TSP receives written notice of a more recent address. All beneficiaries must provide the TSP record keeper with a taxpayer identification number; i.e.,Social Security number (SSN), employee identification number (EIN), or individual taxpayer identification number (ITIN), as appropriate. The following additional rules apply to payments to nonspouse beneficiaries:(1)Payment to minor child or incompetent beneficiary. Payment will be made in the name of a minor child or incompetent beneficiary. A parent or other guardian may direct where the payment should be sent and may make any permitted tax withholding election. A guardian of a minor child or incompetent beneficiary must submit court documen tation showing his or her appointment as guardian.(2)Payment to executor or administrator. If payment is to the executor or administrator of an estate, the check will be made payable to the estate of the deceased participant, not to the executor or administrator. A TINmust be provided for all estates.(3)Payment to trust. If payment is to a trust, the payment will be made payable to the trust and mailed in care of the trustee. A TIN must be provided for the trust. (4)Payment to inherited IRA on behalf of a nonspouse beneficiary.If payment is to an inherited IRA on behalf of a nonspouse beneficiary, the check will be made payable to the account. Information pertaining to the inherited IRA must be submitted by the IRA trustee. A payment to an inherited IRA will be made only in accordance with the rules set forth in 5 CFR 1650.25.(5) If a death benefit payment is returned as undeliverable, the TSP record keeper will attempt to contact the beneficiary. If the beneficiary does not respond within 60 days, the TSP will forfeit the death benefit payment to the Plan. The beneficiary can claim the forfeited funds, although they will not be credited with TSP investment returns.(6) A properly paid death benefitpayment cannot be returned to the TSP.