Life and Death Planning for Retirement Benefits

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Chapter 6: Leaving Retirement Benefits in Trust 331
What if the right-to-receive is transferred to a trust beneficiary under a discretionary power
to distribute principal, but the trust is ongoing? Although the regulation refers to a “terminating”
trust, the exception applies to any properly authorized transfer from the trust to its residuary
beneficiaries, which is in effect a termination of the trust with respect to such asset. See PLRs
2005-26010, 2006-52028, 2008-03002, 2008-26028, and 2010-13033.
B. Transfer from estate to estate beneficiary. Similarly, the transfer of a retirement plan by
an estate to the estate’s residuary beneficiaries is a nontaxable event. See PLR 2005-20004,
in which the participant died leaving his IRAs and a 401(k) plan to his estate. The executor
(who was authorized by the will to make distributions in kind) transferred the IRAs and
plan to the estate’s residuary beneficiary, a charity, in partial satisfaction of the charity’s
residuary bequest. This was ruled not to be an income-triggering assignment under
accordingly, only the charity realized gross income from the IRAs and plans
(when later distributions were received by it). See also the similar PLRs 2002-34019, 2006-
17020, and 2006-33009; 2006-18023 (nonqualified annuity transferred to residuary
beneficiaries); 2008-50004; and 2008-50058.
Some rulings approving the transfer of an IRA from an estate to the estate beneficiaries as
a nontaxable event do not mention See PLRs 2004-52004, 2006-46025, 2006-46027,
2006-46028, 2006-47029, and 2006-47030.
6.5.08 Funding pecuniary bequest with right-to-receive IRD
dealt with the transfer of a retirement plan, intact, to a trust or estate beneficiary
in fulfilment of a specific or residuary bequest. In Chief Counsel Advice (CCA) 2006-44020, the
IRS addressed the tax consequences of a trustee’s transferring an IRA to a beneficiary to fulfill a
pecuniary legacy. The Chief Counsel advised that the trustee’s assignment of an interest in an IRA
to a trust beneficiary in satisfaction of a pecuniary gift triggered realization of income at the trust
level under Citing Kenan v. Comm’r, 114 F. 2d 217 (2d Cir. 1940), the IRS said the
trust “has received an immediate economic benefit by satisfying its pecuniary obligation to the
Charities with property on which neither Trust nor Decedent have previously paid income tax
which is a disposition for purposes.”
Is the Chief Counsel correct? The Kenan case involved a fiduciary’s transfer of appreciated
property (not IRD) in fulfilment of a pecuniary bequest, and dealt with (not . In the
author’s opinion, the second sentence of should govern (and make the transfer
nontaxable) when the right to receive IRD is transferred in fulfilment of a pecuniary bequest in (at
least) the following two circumstances: Either the governing instrument requires that such bequest
be fulfilled with that asset; or (even if the instrument does not explicitly require use of that asset)
the fiduciary has no choice because no other asset is available:
Ron Example: Ron dies, leaving his $1 million IRA payable to his trust as beneficiary. The trust
contains a pecuniary formula marital bequest, under which the marital trust is entitled to $400,000.
The trust holds no other assets except the IRA. Ron’s trustee divides the IRA into two separate
inherited IRAs, one with a value of $400,000. The trustee transfers this $400,000 IRA to the marital
trust and keeps the other IRA for the residuary credit shelter trust. In this example, in the author’s
opinion, the IRA is transferred to the marital trust “by bequest from the decedent.” The funding
trust is not “selling” or “exchanging” the IRA; it is transferring the IRA to the person entitled to it
under the terms of the decedent’s trust. The trustee has no choice regarding which asset to use to