Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 75
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
or a 100 percent grantor trust (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
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 .
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 , so her Required
Commencement Date is automatically extended to December 31, 2010. The special
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. 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
D)–(E), and if she is the sole life beneficiary of a conduit trust
that is named as sole beneficiary of the benefits. Reg. A-5(c)(2), A-7(c)(3),
Example 2, paragraph (ii). See for definition of “conduit trust.”
However, for purposes of the spouse’s right to elect to treat an inherited IRA as her own
IRA , 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. 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
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” , 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 D)–(E), and (though not
for purposes of the spousal rollover and the spousal election to treat an inherited IRA as