Generally, the provisions in a retirement plan document determine the asset distribution options available to beneficiaries. The options are typically a lump-sum distribution or payments in the form of an annuity. From a regulatory perspective, you are allowed to distribute the assets over the life expectancy of the oldest sibling.

If the assets are allocated into separate accounts by Dec. 31 of the year following the year of the parent's death, then each sibling may use their life expectancy to calculate required minimum distribution amounts.

Payment options for children who inherit a pension from a parent depend upon the plan options originally selected by the parent.

If the parent was retired but died before the required beginning date, then the beneficiary has the option of receiving payments over five years or less. However, this will only apply if the beneficiary did not begin distributions using the life-expectancy method by Dec. 31 of the year following the year the parent died. To be sure of the options available, check with the administrator of the parent’s defined-benefit plan.

Advisor Insight

Gage DeYoung, CFP®
Prudent Wealthcare LLC, Aurora, CO

Assuming your parent elected a period certain pension option for payment at retirement and named you as beneficiaries, you and your siblings would be entitled to the continuing payments until the period expires.

For example, if a parent elected a 20-year period certain pension option and passed away after 10 years from the date the pension started paying, his beneficiaries would be entitled to split the monthly payment for the next 10 years.

It will be important to find out what election was made by your parent prior to the payment start date. Many corporate pensions only offer single-life or joint-life payment options.

If that’s the case, the payments, unfortunately, stop at the passing of the original payee—or the passing of the original payee and their spouse, with a joint-life option.