Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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credit shelter trust, even though no portion of the IRA actually was allocated to the credit shelter trust. PLR 2003-14029 is similar. If the participant’s will or trust (or applicable state law) allows or requires debts, expenses, and/or taxes to be paid out of the estate or the trust, and therefore arguably out of the retirement benefits that are payable to that estate or trust, does that potential liability represent a possible limit on the spouse’s ability to take the benefits out of the estate or trust? Most of the PLRs don’t even mention this subject, but some do mention it and allow the rollover anyway; see PLRs 2001-36030, 2001-30056. In PLR 2009-34046 (allowing the spousal rollover through a trust), the taxpayer “recited” that all debts, expenses, etc., were paid out of assets other than the IRA; the IRS does not comment on this aspect. D. Legal basis for IRS’s position allowing rollovers. The IRS in some of the rulings ( e.g. , PLR 2004-06048) recites that the Preamble to the Final Regulations provides “that a surviving spouse who actually receives a distribution from an IRA is permitted to roll that distribution over ...even if the spouse is not the sole beneficiary .... A rollover may be accomplished even if IRA assets pass through either a trust or an estate.” However, the cited Preamble does not contain the second sentence “quoted.” T.D. 8987, 2002-1 CB 852. In most of the rulings, the IRS recites that benefits may be rolled over by a surviving spouse only if the benefits pass to the spouse from the decedent , and that the general rule is that benefits that pass to the spouse through an estate or a trust are not deemed to pass to the spouse from the decedent. Then in each and every ruling the IRS goes on to say that, based on the facts of this particular case , the IRS will not apply the general rule! One recent ruling suggested a possible shift towards a more appropriate approach of setting a standard that all taxpayers can rely on. PLR 2009-34046 stated that “the general rule will not apply in a case where the surviving spouse is the sole trustee of the decedent’s trust and has the sole authority and discretion under trust language to pay the IRA proceeds to herself ....” However, a more recent PLR (2009-35045) goes back to the “this set of facts” language. 3.3 Qualifying for the Marital Deduction This ¶ 3.3 describes how retirement benefits left to the participant’s surviving spouse, or to a trust for her life benefit, can qualify for the federal estate tax marital deduction if the surviving spouse is a U.S. citizen, and provides details on the most-used methods of so qualifying. This discussion assumes the reader is familiar with the uses and requirements of the federal estate tax marital deduction, and so explains only how the marital deduction rules apply uniquely to retirement benefits . If the participant’s spouse is not a U.S. citizen, additional rules apply that are not covered in this book; see § 2056A . For more on the marital deduction generally; and details on how to qualify retirement benefits for the marital deduction if the spouse is not a U.S. citizen, or if using the less common methods; see the author’s Special Report: Retirement Benefits and the Marital Deduction (Including Planning for the Noncitizen Spouse) ( Appendix C ).

For deaths in 2010, see ¶ 4.3.08 regarding the one-year “repeal” of the federal estate tax.

Road Map: Leaving Benefits to Spouse or Marital Trust