Drafting Designations with a rising Exemption
Situation:
H has an IRA worth $5 mil and no other assets
H is married to W, his second wife and has children from previous marriage.
H wants to leave the maximum amount to fill up the exemption in trust to his children (up to $3 mil) and the balance to the QTIP.
How do I do this?
I assume I want to do a fractional formula so I can have separate accounts after death, but how do I do a fractional formula based on the exemption, but with a cap in case the exemption is too high?
Permalink Submitted by Bruce Steiner on Thu, 2008-03-06 19:16
As a practical matter, you have to divide the IRA in fractions, since the executor has no control over it. You could put the marital/credit shelter formula that would normally be in the Will in the beneficiary designation form. Just as a formula in a Will takes into account nonprobate assets, you would have to take into account any non-IRA assets going other than to the spouse.
Your client may want to consider whether he wants the marital share in a QTIP trust, especially beginning in 2009 if his desired allocation is $2 million to the marital share and $3 million to the children. While it gives him control over the principal, it gives up rollover, the possible Roth conversion, and substantial income tax deferral. Would he be willing to leave a slightly smaller share to her outright?
Bruce Steiner, attorney
NYC
also admitted in NJ and FL