598 / Is there a taxable gift when an individual covered under a qualified plan, a tax sheltered annuity, or an individual retirement plan irrevocably designates a beneficiary to receive a survivor benefit payable under the plan?

An irrevocable beneficiary designation would appear to be a gift falling under the broad sweep of IRC Section 2511, applying the gift tax “whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.”¹ The IRS has ruled, for example, that a retiring federal employee who receives a reduced annuity to provide a survivor annuity for the beneficiary makes a gift subject to gift tax of the value of the survivor annuity by the mere act of retiring.²

If the beneficiary designation does trigger a gift, it will clearly be one of a future interest, which means it will not qualify for the gift tax annual exclusion.³ If the beneficiary of the survivor annuity is the employee’s spouse, however, the gift generally will qualify for the marital deduction ( Q 619).⁴

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1.     IRC § 2511(a); Treas. Reg. § 25.2511-1(a).

2.     Let. Ruls. 8715010, 8715035, 8811017.

3.     Treas. Reg. § 25.2503-3(c) (Ex. 2).