Need Help Determining What Life Expectancy to Use
Client is a beneficiary-spouse of a properly created conduit IRA Trust. Decedent died in 2007. Broker wants to use the Single Life Expectancy table from 2007 for her age (factor of 12.1 minus 1 = 11.1); my argument is that since it is a see thru trust then we should use the life expectancy tables from today which would be in 20s.
Who is right? Any links or references?
Permalink Submitted by Bruce Steiner on Thu, 2010-01-21 17:04
I would question the words “properly created.” Why did her husband create a conduit trust for her?
If you leave an IRA to a QTIP (marital) trust rather than outright, you give up a good deal of stretchout in exchange for control over the principal. But making it a conduit trust gives up control to the extent the required distributions exceed the income, in exchange for very little additional stretchout (the ability to recalculate the spouse’s life expectancy each year). Someone who is willing to give up considerable income tax benefits in exchange for control over the principal is unlikely to want to reduce the degree of control by using a conduit trust.
If you leave an IRA to a credit shelter (bypass) trust, to the extent the conduit feature forces distributions to the spouse, you’re taking assets that were out of the spouse’s estate and protected against her creditors (including future spouses, and perhaps Medicaid) and throwing them into the spouse’s estate where they will be subject to estate tax in her estate, and exposed to her creditors (including future spouses and Medicaid).
I don’t think either you or the broker is correctly calculating the required distributions. The trustees may wish to consult with competent tax/estates counsel. The spouse may wish to have competent counsel review her estate plan as well.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by John Panaro on Thu, 2010-01-21 17:28
Decedent passed away in 2007 – this strategy was in place way before I had met the client. I am just looking to understand which table in Appendix C. of Publication 590 should be used? And what Year particular year of the table?
Permalink Submitted by Alan Spross on Thu, 2010-01-21 19:27
What would have been both the decedent’s and the sole spousal trust beneficiary’s attained age in 2007?
In any event, Table III would not apply unless and until the survivor was able to do a spousal rollover.
Permalink Submitted by Al Fry on Thu, 2010-01-21 21:11
Bruce/Alan: If this is truly a conduit see-thru, meaning RMDs must be paid out, I was under the impression a Spouse could re-calculate from Table I. At least I think that is Natalie’s take.
Permalink Submitted by Alan Spross on Thu, 2010-01-21 23:50
Al,
I fully agree that Table I recalc would be in order for a sole spouse trust beneficiary if a qualified trust.
If death was after the RBD here, the decedent’s age could be considered, but using the survivor’s age will always produce a lower RMD at the ages possible in this particular case.
Permalink Submitted by Bruce Steiner on Fri, 2010-01-22 03:36
Al: you are correct. As a result, the required distributions are slightly lower in the case of an IRA payable to a conduit QTIP trust than in the case of an IRA payable to a regular QTIP trust. But as previously noted, the conduit QTIP results in substantially greater required distributions than an IRA payable to the spouse outright, and less control than an IRA payable to a regular QTIP trust. So I don’t think that leaving an IRA to a conduit QTIP trust is likely to make sense very often, if ever.
And an IRA payable to a conduit credit shelter trust for the spouse seems like the worst of all worlds — the distributions are based on the spouse’s life expectancy, and the distributions take assets that were out of the spouse’s estate and throw them back into the spouse’s estate.