Advanced Beneficiary and Death Claim Concepts

Transcription

1 Advanced Beneficiary and Death Claim Concepts

2 Learning Objectives Identify special issues that arise in processing death claims Explain the procedures for handling special issues 2

3 Per Capita vs. Per Stirpes IRA Owner (Per Capita) One Primary Beneficiary Predeceases IRA Owner All Primary Beneficiaries Predecease IRA Owner Primary Primary Contingent Contingent 3

4 Per Capita vs. Per Stirpes IRA Owner (Per Stirpes) One Primary Beneficiary Predeceases IRA Owner Primary Primary Primary Beneficiary Heirs 4

5 Per Capita Example Peter and Cindy are primary beneficiaries of Carol s IRA. Carol s IRA document has a presumption of a per capita designation. If Peter predeceases Carol, his share will pass to Cindy. Cindy will receive 100% of the IRA assets, leaving Peter s family with no share of the IRA. 5

6 Per Stirpes Example Carol s attorney drafts a per stirpes beneficiary designation that names Peter and Cindy, as equal primary beneficiaries of her IRA. If Peter predeceases Carol, his share will pass to his heirs rather than 100% passing to Cindy. 6

7 Organizations as Beneficiaries 7

8 Community/Marital Property Alaska Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin 8

9 No Community Property Issues to Consider Not married Signed consent of spouse Did not live in community property state 9

10 Community Property Bobby, a lifelong resident of Culdesac, Idaho, recently died. Bobby named his business partner, Oliver, as his primary beneficiary. Tracy maintains that, as Bobby s wife, she is entitled to the IRA assets. 10

11 Community Property Is Tracy entitled to any portion of the assets? Because Bobby has always lived in a community property state, his wife, Tracy, may be entitled to the IRA assets. The financial organization should work with its legal counsel to determine appropriate action. The court will determine the proper recipient. 11

12 Authority of an Agent to Designate Beneficiaries Explain Default Beneficiaries Verify Agent's Authority Retain Original Designation 12

13 Divorce and Beneficiary Designations Former spouse may have rights to assets Determine if Uniform Probate Code (UPC) applies Consult legal counsel 13

14 Rights After Divorce Jan named her husband, Phillip, as her sole primary beneficiary. She named her sister, Marcia, as the contingent beneficiary. Jan and Phillip divorced in After the divorce, Jan did not update her beneficiaries. Jan died on April 15,

15 Rights After Divorce Who is entitled to the IRA assets? Financial organizations must check the rules of their state and the divorce documents before making a decision. 15

16 Notified of Death After December 31 of the Year After Death Missed payments? 50% penalty tax? 16

17 Notified of Death After the Beneficiary Distribution Deadline Today is June 28, Emma was born on May 3, Emma died on December 8, Alice, age 76, is her cousin s sole primary IRA beneficiary. 17

18 Notified of Death After the Beneficiary Distribution Deadline Based on this information, what was the deadline for Alice to complete a lump-sum distribution or take a life expectancy payment? The deadline was December 31,

19 Notified of Death After the Beneficiary Distribution Deadline How will this affect Alice when she chooses to distribute IRA assets in the future? This will not affect future payments, but Alice will be subject to a 50% penalty tax for missing the life expectancy payments in 2016 and

20 Assets Disbursed After IRA Owner s Death No IRS guidance Don t have to undo 20

21 IRA Owner s Assets After Death After Death After Death Sole Beneficiary Named Beneficiary Receives < Share Recipient Not Entitled to Assets Not required to retrieve Not required to correct tax reporting Not required to retrieve Not required to correct tax reporting May attempt to retrieve May be held liable Correct tax reporting if assets retrieved 21

22 Assets Disbursed After IRA Owner s Death Carol, age 73, died on June 3, Organization notified of death on October 8, Organization distributed her RMD payment each month during 2018, including October. The death claim is now being processed. Mike is the sole primary beneficiary and has been receiving Carol s monthly payments. 22

23 Assets Disbursed After IRA Owner s Death How should you handle the assets that were already disbursed to Mike and what tax reporting should occur? Because there is no IRS guidance on what MUST be done in this situation, the financial organization will need to make its own determination on which course of action it should take. 1. Even though the assets went to the beneficiary, the financial organization could report the distributions in Carol s name and Social Security number. 2. The financial organization could correct the Form 1099-R to reflect Mike s name because he was the beneficiary and actually received the assets. 23

24 One or More Primary Beneficiaries are Deceased Beneficiary Dies IRA Owner Dies Assets Disbursed Beneficiary no longer entitled to assets Assets distributed according to beneficiary designation 24

25 Beneficiary Dies Before IRA Owner Greg s primary beneficiaries are Nora and Kevin. His contingent beneficiaries are Johnny and Tim. Nora died on February 17, Greg died on May 18,

26 Beneficiary Dies Before IRA Owner Who is going to receive Greg s IRA assets and what percentage will go to each beneficiary? Kevin, as remaining primary beneficiary, will receive 100% of the inherited assets. 26

27 Beneficiary Dies After the IRA Owner Before Receiving the Assets IRA Owner Dies Beneficiary Dies Assets Disbursed Beneficiary still entitled to assets Successor beneficiaries receive, but may not extend distribution method If beneficiary does not name successor beneficiaries, assets distributed according to plan agreement 27

28 Beneficiary Dies After IRA Owner Ed s primary beneficiaries are Robert and Ted. Ed s cousin, Harry, is his contingent beneficiary. Ed died April 13, Robert died on April 14,

29 Beneficiary Dies After IRA Owner Who will receive the assets from Ed s IRA, and why will the death benefits be disbursed that way? Because Robert died after Ed, Robert is still an eligible primary beneficiary. Unless state law determines otherwise, Robert s share will be disbursed to whomever he named as successor beneficiary. Because Robert did not name successor beneficiaries, his share will be disbursed according to the IRA plan agreement default provision. Ted will still receive his share of the assets as a surviving primary beneficiary. 29

30 Spouse Inherits and Dies Before Payments Required to Begin Original IRA Owner Dies before RBD Spouse Beneficiary Options Own life expectancy 5-year rule Transfer Distribute and rollover Treated as IRA Owner Beneficiary Options Own life expectancy 5-year rule 30

31 Spouse Inherits and Dies Before Payments Required to Begin Cindy, age 50, died in Gary, age 51, is the primary beneficiary. Gary chooses life expectancy payments beginning in Gary names Jake as his successor beneficiary. Gary passes away in Gary is treated as the IRA owner when determining Jake s payment options. Jake can choose between distributing the IRA assets over his own single life expectancy or depleting the IRA within 5 years. 31

32 Does not violate federal laws Cannot extend life expectancy Beneficiaries Naming Beneficiaries Consider state trust laws Review IRA documents 32

33 Beneficiaries Naming Beneficiaries IRA Successor Beneficiary as beneficiary of IRA Beneficiary 33

34 Successor Beneficiary Example Jessica Logan died in 2016 and named Patty Covington as her IRA beneficiary. Patty s 2016 Form 5498 was titled, Patty Covington as beneficiary of Jessica Logan. Patty named Matt Kelly as her successor beneficiary. Matt s 2018 Form 5498 will be titled as, Matt Kelly as beneficiary of Patty Covington. The final Form 5498 for Patty (generated for the year of death) will read, Patty Covington as beneficiary of Jessica Logan. 34

35 Beneficiaries Disclaiming Interest in the IRA Written, irrevocable refusal to accept Cannot steer benefits to a selected person Received within 9 months after IRA owner s death or 9 months after beneficiary turns age 21 Beneficiary may not disclaim assets already received 35

36 Disclaiming an Interest in the IRA Wally, age 74, died on June 10, His primary beneficiary is his wife, Marcia. His children, Mickey and Jessica, are the contingent beneficiaries. Marcia decides that she wants the children to receive the IRA assets. 36

37 Disclaiming an Interest in the IRA Can Marcia disclaim her interest in the assets? Yes If yes, what is her deadline to disclaim the assets? March 10, 2019 (9 months after Wally s death) 37

38 Minor Beneficiaries Governed by state law Age of majority Pay to appointed parent or guardian 38

39 Contesting Beneficiary Designations Governed by state law Last document executed More specific document Refer to financial organization s attorney Wait for court determination 39

40 Questions?

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