Life and Death Planning for Retirement Benefits

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162 Life and Death Planning for Retirement Benefits
C. Roll some to spouse’s plan, leave some in decedent’s plan. Estimate the spouse’s needs
prior to age 59½, leave that amount in the deceased participant’s account (so she can
withdraw it penalty-free), and roll over the rest to the spouse’s own IRA.
D. Roll to an “inherited” IRA. If the spouse wants to leave the benefits in the decedent’s
plan for a while, but the plan in question insists that the spouse must take a lump sum
distribution of the benefits immediately , the spouse can roll over that distribution
to an IRA in the name of the decedent, payable to her as beneficiary, in order to preserve
its status as a penalty-free death benefit until such later time as she chooses to roll it over
to her own plan. See
3.2.09 Spousal rollover through an estate or trust
If the participant’s benefits are left to his estate or a trust as beneficiary, the surviving
spouse can roll over benefits that are paid to her as a beneficiary of the estate or trust, provided the
spouse has, and exercises, the right to demand payment of the benefits to herself.
There is no statute, regulation, or case stating this principle. Nevertheless, it is the IRS’s
most longstanding, consistent, and logical position in the entire field of employee benefit
distributions. Dozens of private rulings have affirmed this principle consistently since 1993. Yet
in all that time the IRS has never stated the rule in any form that could be cited as precedent (such
as a regulation or Revenue Ruling). In view of the longstanding consistent and clear IRS position
as indicated by dozens of PLRs, IRA custodians may be willing to rely on an opinion of counsel
in accepting spousal rollovers under these circumstances; this approach would save the surviving
spouse substantial expense and delay (compared with having to obtain a PLR).
The IRS has approved spousal rollovers with respect to every type of retirement plan
covered by this book, through either an estate or trust or both, wherever the spouse has the right to
the benefits, either because she is sole beneficiary of the estate or trust, or because she has the right
to and does demand the benefits in fulfilment of her share; see “A.” However, if the spouse’s
receipt of the benefits depends on the discretion of a third party , or on meeting a standard for
distribution, then the rollover is not allowed; see “B.” If only some but not all of the benefits are
subject to the spouse’s unfettered right to withdraw them, then only that portion is eligible for
rollover; see “C.” For the legal basis for this IRS position, see “D.”
If the participant has already died, leaving benefits to a trust that does not meet this
standard, and the survivors want to have the benefits qualify for a spousal rollover, see
regarding ways to modify, invalidate, or otherwise sidestep the participant’s documents.
There are a few rulings that deviate from these rules, always in favor of even more liberally
allowing the spouse to do the rollover, but these should be regarded as anomalous; see PLRs
8920060, 1999-13048, and 2006-15032.
A. Spousal rollover of all types of plans through estate, trust, or both. Here is a partial list
of PLRs approving the spousal rollover under these circumstances for various types of
retirement plan benefits through the participant’s estate, a trust, or both (i.e., where benefits
are paid first to the participant’s estate, thence to a pourover trust, and from there to the