IRA DISTRIBUTIONS TO A QTIP TRUST
Must the entire minimum required distribution from an IRA to a QTIP Trust or only the income portion of the distribution, which is a lesser amount, be passed to the spouse? The IRA was originally funded through a converted profit sharing plan approximately 20 years ago and I am not sure if the minimum required distribution should all be considered income or not. Thank you!
Permalink Submitted by Alan Spross on Thu, 2007-10-18 19:35
See att’d copy of a post from Bruce Steiner addressing this issue:
bsteiner
Joined: 31 Dec 1969
Posts: 23
Posted: 14 Oct 2007 11:43 Post subject:
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She need only get the income. The QTIP (marital) trust will have to take distributions over her life expectancy.
In the early years, if the income in the IRA is more than the required distributions, the trustees can withdraw the rest of the income. For example, if in the first year, the IRA has income of $50,000, but the required distribution is $40,000, the trustees would take $50,000 out of the IRA and give it to her. She may be able to roll the $10,000 by which the income exceeded the required distribution into her own IRA.
In the later years, the required distributions will exceed the income. For example, if in some year the IRA has income of $40,000 but the required distribution is $50,000, the trustees will have to take $50,000 out of the IRA. They’ll only have to give her $40,000. The remaining $10,000 will become principal in the trust. She’ll also get the income from the accumulated principal of the trust.
If she lives to her life expectancy, at that point the IRA will be depleted. All of the principal of the IRA will be principal in the trust. She will have received all of the income from both the IRA and the trust.
You could give the trustees the power to give her more than the income. This could be a useful power in case she needs more than the income in a given year. If you permit the trustees to do so, the trustees could take more money out of the IRA than is required in a given year.
This approach lets you get the marital deduction, while controlling the ultimate disposition of the principal. But the tradeoff (compared to leaving the IRA to your wife outright) is that you give up the spousal rollover, the potential Roth conversion, and her ability to name new beneficiaries and get a longer stretchout.
You might also provide that after your wife’s death, the balance of the trust (including the balance of the IRA if your wife dies before reaching her life expectancy) goes to your daughter in trust rather than outright. In this way, her inheritance will be protected against her potential creditors (including spouses), and will not be included in her estate for estate tax purposes.
For more on this, see my article “Trusts as Beneficaries of Retirement Benefits” in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by greg van ort on Sun, 2007-10-28 14:23
[quote=”[email protected]“]See att’d copy of a post from Bruce Steiner addressing this issue:
bsteiner
Joined: 31 Dec 1969
Posts: 23
Posted: 14 Oct 2007 11:43 Post subject:
——————————————————————————–
She need only get the income. The QTIP (marital) trust will have to take distributions over her life expectancy.
In the early years, if the income in the IRA is more than the required distributions, the trustees can withdraw the rest of the income. For example, if in the first year, the IRA has income of $50,000, but the required distribution is $40,000, the trustees would take $50,000 out of the IRA and give it to her. She may be able to roll the $10,000 by which the income exceeded the required distribution into her own IRA.
In the later years, the required distributions will exceed the income. For example, if in some year the IRA has income of $40,000 but the required distribution is $50,000, the trustees will have to take $50,000 out of the IRA. They’ll only have to give her $40,000. The remaining $10,000 will become principal in the trust. She’ll also get the income from the accumulated principal of the trust.
If she lives to her life expectancy, at that point the IRA will be depleted. All of the principal of the IRA will be principal in the trust. She will have received all of the income from both the IRA and the trust.
You could give the trustees the power to give her more than the income. This could be a useful power in case she needs more than the income in a given year. If you permit the trustees to do so, the trustees could take more money out of the IRA than is required in a given year.
This approach lets you get the marital deduction, while controlling the ultimate disposition of the principal. But the tradeoff (compared to leaving the IRA to your wife outright) is that you give up the spousal rollover, the potential Roth conversion, and her ability to name new beneficiaries and get a longer stretchout.
You might also provide that after your wife’s death, the balance of the trust (including the balance of the IRA if your wife dies before reaching her life expectancy) goes to your daughter in trust rather than outright. In this way, her inheritance will be protected against her potential creditors (including spouses), and will not be included in her estate for estate tax purposes.
For more on this, see my article “Trusts as Beneficaries of Retirement Benefits” in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf
Bruce Steiner, attorney
NYC
also admitted in NJ and FL[/quote]