Do you have any suggestions For going forward in the process I’m going through with my late brother’s employer regarding his 401k distribution? (I am the Personal Representative). It’s a bit of a read here…thank you.

I was advised by my probate attorney to submit a disclaimer on behalf of my mother (86 yrs old, sick with dementia & Alzheimers; I am her Power of Attorney) who is the beneficiary for the 401k as our father, the designated beneficiary, passed. This was advised to be done to reduce her taxable estate as she lives in a state that imposes an estate tax (father predeceased brother by 9 months). My brother lived in the same state and he left a $2.6 million estate that had state Estate tax due of $152,000.

The concern was that if she passes with her assets, plus the assets she inherited from her son (my brother),
Another large state Estate tax bill will be incurred – literally ‘double taxing’ most of the same money that had been previously taxed at my brother’s Estate.

By disclaiming the 401k benefit, it would then pass to the estate, which directs (through my brother’s Will) that my brothers assets are to go to mom and dad, then myself and our younger brother. I was advised that with a second disclaimer by my mom at the Estate level the 401k could be passed through and rolled over to Inherited IRA’s for the next beneficiaries, my brother and I. This will help accomplish the recommendation to reduce moms taxable estate.

I submitted a specific disclaimer to my brothers employer to disclaim the 401k Plan benefit by mom as beneficiary; When this is done, her disclaimed interest (at the plan level) would pass to the estate. I was advised that my mother would then be the beneficiary to the 401(k) asset at the estate level.

I’ve submitted to my late brother‘s employer, the Company Plan (401k) specific disclaimer and also the Estate level disclaimer. The employer tells me that with the 401k disclaimer, the benefit goes to the Estate, and an Estate cannot open Inherited IRA’s. The Estate would then have to do a lump sum Distribution, incurring a significant tax liability And staying in moms assets. What about the Estate level disclaimer? Is this not a valid option?

Thank you very much for your time.