Planning for Disclaimers

In a few recent posts, I have described how disclaimers work, and how they can be used by your beneficiary after your death to reroute your retirement benefits. Like most things, disclaimers work best if your planning has been done before your death, rather than afterward. And like most things, planning works best if you’ve talked to your loved ones, and have a good idea of what they might want.

Here are a few variations:

• The original idea was mentioned by noted retirement expert Ed Slott, and described in April 15’s post. It is also the most common. Here is a recap: You name your spouse as primary beneficiary, with your children, equally per stirpes, as contingent beneficiaries. Then if you die (actually, not “if” but “when”), if your spouse does not feel she needs your entire retirement account, she can disclaim a portion and that portion then goes to your children.
• The disclaimers don’t have to stop there. If one of your children is then feeling equally magnanimous, he can also disclaim a portion of his share, and the disclaimed portion will go to his children—your beloved grandchildren, they should live and be well. (An aside: This highlights the importance of ensuring that you write your Beneficiary Designation Form so that if a child predeceases you, his share goes to his kids and not his siblings. That’s the import of using the words “per stirpes.”)
• If your primary beneficiary (your spouse, say) has a charitable bent, you can name her favorite charity as contingent beneficiary. Then to the extent she disclaims, the retirement account goes to her favorite charity. That is often a tax efficient way to get dollars from a traditional retirement account to a charity.
• If your family is wealthy enough to be concerned about estate taxes (you lucky dog!), you can name your spouse as primary beneficiary with a trust for your spouse as contingent beneficiary. Then by disclaiming a portion, your spouse can cause your estate to take better advantage of the $3,500,000 estate tax exemption. And she can still benefit from the trust! What a country!
• If your family is wealthy enough to be hit by estate taxes, be sure your Will has a clause that allocates additional estate taxes that might be caused by a disclaimer to the branch of the family benefiting from the disclaimer. Fair’s fair.

So talk to your family. Before you die; not afterward.