“A designated beneficiary need not be specified by name in the plan or by the employee to the plan in order to be a designated beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan. The members of a class of beneficiaries capable of expansion or contraction will be treated as being identifiable if it possible to identify the class member with the shortest life expectancy.”
For example, if the trust includes a testamentary power of appointment to the surviving spouse of the beneficiary, with no age limit on the beneficiary’s surviving spouse, the trust will not qualify as a designated beneficiary because it is impossible to identify the class member with the shortest life expectancy.
Some Final Thoughts
Which of the above options will work best in a given situation will depend on all the facts and circumstances. What is important to note here is that the options can be combined, if desired, to produce maximum benefits. For example, the “amortization approach” option outlined under heading 1, above, can be combined with the estate plan described under heading 2, above, which lowers overall income taxes by leaving the IRA-type assets to the lower income tax bracket members of the family, and/or with the life insurance and long-term care insurance options described under heading 3, above.
James G. Blase, CPA, JD, LLM, is founder of Blase & Associates LLC, a St. Louis-area law firm practicing primarily in estate planning, tax, elder care, asset protection, and probate and trust administration. Mr. Blase is also an adjunct professor in the Villanova University Charles Widger School of Law Graduate Tax Program.