Allocation of RMD income between by-pass trust and spouse
I have a client who is the sole income beneficiary of her deceased husband’s irrevocable credit-shelter, by-pass trust. One of his IRA’s is a beneficial IRA to the trust. In an Ed Slott newsletter there was a reference to a regulation that indicated how RMD were to be allocated between the income beneficiary and the trust for income allocation purposes. First does anybody know the Reg number?, and second are there any gray areas in this regard. The surviving spouse in my example will not have an estate tax liability, so I would like to distribute the majority of the RMD to her, but I would also like to make sure that she records the taxable income on her tax return to the extent of the distribution. Thanks for your help.
Permalink Submitted by Bruce Steiner on Thu, 2008-08-21 20:06
What does the Will or trust agreement say? To what extent does it require, permit or prohibit distributions to the spouse? The attorney handling this matter should be able to give you specific advice based upon the language of the Will or trust agreement, and your objectives.
If the spouse won’t have a taxable estate, and you’re looking to make substantial distributions to her, why didn’t the decedent simply leave his IRA to her outright?
Permalink Submitted by Glen Snell on Tue, 2008-08-26 19:59
The trust specifically states, “Our trustee shall distribute to or for the benefit of the Survivor so much of the net income and principal of the Decedent’s Trust as our Trustee, in its sole and absolute discretion, shall consider necessary or advisable for the education , health, maintenance, and support”
I was not involved with the initial planning of this trust, so I am not sure why, but it was initially funded during a time when $650,000 of estate assets could be passed without an estate tax. This would still be a problem if that limit were still in place.
Thanks.