Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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the participant’s surviving spouse and other family members. The litigation was settled by an agreement reforming the trust, so that it became either a conduit trust ( ¶ 6.3.05 ) or a 100 percent grantor trust ( ¶ 6.3.10 ) (the ruling is not clear) for the surviving spouse’s benefit, with remainder to her son. The surviving spouse then later died before she reached age 70½. (Actually, the wife’s age at her death was not relevant; despite the wording of this ruling, the question under § 401(a)(9)(B)(iv)(II) is whether she died before the end of the year the deceased participant would have reached age 70½; see “B.”) The IRS then applied the special (B)(iv)(II) rule. The IRS ruled that the son was not the spouse’s Designated Beneficiary, because she “had not named a beneficiary of her interest in IRA X prior to her death.” The result was that the 5-year rule applied to the IRA after the spouse’s death. This result seems erroneous based on the IRS’s own definition of Designated Beneficiary (see ¶ 1.7.02 ). D. Effect of suspension of RMDs in 2009. If under normal circumstances the surviving spouse’s Required Commencement Date would have been December 31, 2009, a special rule applies. There were no RMDs for the year 2009 ( ¶ 1.1.04 ), so her Required Commencement Date is automatically extended to December 31, 2010. The special § 401(a)(9)(B)(iv)(II) rule will apply if she dies any time before the end of 2010 . Also, if the special rule applies in the case of a surviving spouse who died in 2008, leaving benefits to a Designated Beneficiary, normally her Designated Beneficiary would have to elect between a life expectancy payout and the 5-year rule by December 31, 2009; that deadline is extended to December 31, 2010. Notice 2009-82 , Part V, A-2. 1.6.06 When is a trust for the spouse the same as the spouse? A trust for the spouse’s sole or primary benefit may be entitled to some of the special privileges that apply when the spouse individually is named as beneficiary: A. Spouse is sole beneficiary: conduit trust. The spouse is considered the sole beneficiary of the participant’s account, for purposes of the special spousal rules explained at ¶ 1.6.03 (D)–(E), ¶ 1.6.04 , and ¶ 1.6.05 , if she is the sole life beneficiary of a conduit trust that is named as sole beneficiary of the benefits. Reg. § 1.401(a)(9)-5 , A-5(c)(2), A-7(c)(3), Example 2, paragraph (ii). See ¶ 6.3.05 for definition of “conduit trust.” However, for purposes of the spouse’s right to elect to treat an inherited IRA as her own IRA ( ¶ 3.2.03 ), the spouse must be the sole beneficiary of the IRA and this requirement is not satisfied “[i]f a trust is named as beneficiary of the IRA...even if the spouse is the sole beneficiary of the trust.” Reg. § 1.408-8 , A-5(a). Thus a trust for the spouse’s benefit (even a conduit trust) cannot exercise the spousal election or rollover rights that a spouse named individually as beneficiary can exercise. For the spouse’s ability, in some cases, to use a rollover “through” the trust to achieve the same result, see ¶ 3.2.09 . B. Spouse is sole beneficiary: grantor trust. If a trust is the sole beneficiary of the account, and the surviving spouse is treated as the owner of all of such trust’s property under the “grantor trust rules” ( ¶ 6.3.10 ), she should be considered the sole beneficiary of that trust and accordingly should be considered the participant’s “sole beneficiary” for purposes of the special spousal rules explained at ¶ 1.6.03 (D)–(E), ¶ 1.6.04 , and ¶ 1.6.05 (though not for purposes of the spousal rollover and the spousal election to treat an inherited IRA as

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