Life and Death Planning for Retirement Benefits

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332 Life and Death Planning for Retirement Benefits
fund the marital trust—the IRA is the only asset available. Thus (in the author’s opinion) the
transfer is not taxable under
This conclusion is consistent with several PLRs in which the IRS allowed surviving
spouses to roll over benefits that were paid to them through pecuniary bequests. See PLRs
9524020, 9608036, 9623056, and 9808043, all of which predate CCA 2006-44020; and 2009-
40031 and 2009-43046 (issued after CCA 2006-44020). If the transfers of retirement benefits in
those rulings had been treated as “sales,” the transfers would have triggered immediate realization
(deemed distribution) of the underlying income, and there would have been nothing for the spouses
to roll over. However, those PLRs did not discuss this issue or mention In PLR 2006-
08032, a trustee transferred shares of an IRA to charities in fulfilment of their pecuniary bequests;
the IRS ruled that the transfers did not constitute distributions or rollovers under but did
“not address the issue of whether” the trust realized income unde by virtue of these transfers.
For planning purposes, it is wise to assume that the transfer of retirement benefits out of an
estate or a trust to a beneficiary in fulfilment of a pecuniary bequest will trigger immediate
realization of income unde and estate planners should draft their instruments in a way
that will avoid the problem; see #7.
6.6 See-Through Trust Tester Quiz
Use this quiz to test whether a particular trust qualifies as a see-through trust under the
IRS’s minimum distribution trust rules ¶ 6.3). The quiz is in two parts, PART I
(Preliminaries) and PART II (Beneficiaries and substantive terms). PART III provides some
answers to the quiz.
In some but not all cases, this quiz will give you “the answer” regarding whether a
particular trust qualifies (in the author’s opinion) as a see-through. In cases with no definite answer,
the quiz will reference the section of this book that explains the issues involved.
PART I: PRELIMINARIES
1. At the time it receives the retirement benefits, will the trust be valid under state law? See
Yes: Go to Question 2.
No: Go to Answer A.
2. Is the trust irrevocable, or will it become irrevocable upon the participant’s death? See
Yes: Go to Question 3.
No: Go to Answer A.
3. Has a copy of the trust instrument (or alternative permitted documentation) been provided
to the plan administrator no later than October 31 of the year after the year of the
participant’s death? See A).
Yes: Go to Question 4.
No: Go to Answer B.