Conduit Trust
Spouse is oldest bene of a see-through conduit trust with an inherited IRA payable to it. RMDs must be paid out. Since spouse is oldest bene and it is a conduit trust, I think we recalculate, correct? I thought I had posted this before, but could not find it. Al
Permalink Submitted by Alan Spross on Thu, 2007-11-08 00:38
No, Al, recalculation only applies if the spouse is SOLE beneficiary.
Permalink Submitted by Al Fry on Thu, 2007-11-08 03:11
Alan – She is sole Income bene. I thought remainder benes were ignored with conduit trusts. I think I heard Natalie say that in one of her presentations.
Permalink Submitted by Al Fry on Thu, 2007-11-08 03:29
Alan – I have an older copy of Natalies book here at home (5th addition, 2003), and she seems to agree with the recalc method for spouses (Paragraph 6.3.08) of conduit trusts. She says that if the spouse is the conduit bene, she is considered to be the sole bene. Unfortunately, one custodian is using the Uniform Table. I believe that is incorrect, that the Single life table must be used. Fortunately, we’ve got time to set them straight.
Permalink Submitted by Alan Spross on Thu, 2007-11-08 05:15
I agree that remainder beneficiaries can be ignored, but it was not clear to me in your original post that the non spouse beneficiary(s) were limited to remainder interests.
It is logical to think that if the spouse is the only (not just the oldest)income beneficiary of a conduit trust, that re calc would apply while the spouse is living. That would be consistent with non trust beneficiary rules, but so far have not seen a specific regulation citing that.
Permalink Submitted by Al Fry on Thu, 2007-11-08 15:09
Yes, I should have said it is a Marital Trust.
Permalink Submitted by Bruce Steiner on Thu, 2007-11-08 23:34
Yes, the trustees can recalculate the spouse’s life expectancy. That will make for slightly lower required distributions.
To the extent the income exceeds the required distributions (which is likely to happen in the early years), the spouse may be able to roll the difference over into her own IRA.
A conduit QTIP trust rarely makes sense. If you don’t mind the spouse controlling the IRA, then you should simply name the spouse as beneficiary, so she can roll it over into her own IRA, name new beneficiaries, and potentially convert to a Roth. If you want to minimize the degree of control the spouse has, but still get the marital deduction, then you should leave the IRA to a regular (non a conduit) QTIP trust. In that way, the principal portion of each distribution from the IRA can remain in the trust. Note that in exchange for keeping control over the principal, you give up substantial income tax benefits.