Court Finds Murderous Primary Beneficiary Not Distributee

D.N., a minor, was named as the secondary beneficiary on his father’s 401(k), and his mother was named as the primary beneficiary. The mother killed the father and used the 401(k) as a bargaining chip during plea bargain negotiations. The mother never received the money in the 401(k) due to her “slayer” status, and the money went to D.N. directly. D.N. paid the income tax on the distribution and sought a refund that the IRS denied. D.N. brought suit claiming that his mother was liable for the tax as the distributee of the 401(k) funds.

The Ninth Circuit Court of Appeals held in D.N. v. U.S., 625 F.3d 1222 that even though the mother was the primary beneficiary, the fact that she never received the money prevented her from becoming the distributee of the 401(k) funds. Further, under Oregon law, the mother was not even entitled to the money as a result of her role in the father’s death. The court found that D.N. was the distributee of the funds because he did not acquire the 401(k) funds through his mother, but he received the money directly from the 401(k) plan instead. As distributee of the funds, the court found D.N. liable for the tax.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.