Eligible vs Non-Eligible Designated Beneficiary

After a death, almost everything turns on which of three categories each beneficiary falls into.

Four distinctions that catch people out

"Minor child" means the participant's own child

A grandchild, niece or nephew under 21 is not an EDB. And the exception ends at 21, not at the local age of majority: life-expectancy payments run until the child turns 21, then the 10-year rule takes over, so the account must be empty by 31 December of the year they turn 31.

Naming a charity alongside individuals is corrosive

Without separate accounts, a single non-person beneficiary makes the entire account a Non-Designated Beneficiary account. A 10% charitable share can put the other 90% onto the 5-year rule.

Separate accounts have a hard deadline

Establish them by 31 December of the year following death and each beneficiary uses their own life expectancy and their own category. Miss it and everyone is measured by the oldest beneficiary and by the least favourable category present.

A see-through trust is not an estate

A conduit trust generally passes the underlying beneficiary's status straight through. An accumulation trust is usually treated as a Non-Eligible Designated Beneficiary unless it qualifies as an applicable multi-beneficiary trust for a disabled or chronically ill beneficiary. Only a non-see-through trust falls back to Non-Designated Beneficiary treatment.

The determination date

Status is fixed as of the participant's death, but the set of beneficiaries is finally determined on 30 September of the year following death. That leaves room for a qualified disclaimer within nine months, or a full cash-out of one beneficiary's share, to change the outcome for everyone else.