Estate Planning with Ira Trust for incapable spouse

Client in good health age 75, Spouse has Alzheimers. Husband has $550,000 Ira, spouse has $150,000 Ira. Two daughters age in 50,s good health, live out of state. Can the client set up a trust to recieve his ira at his death for the benefit of his wife and still retain the benefits of a spouse to spouse ira. Can the trust set up or do a beneficial ira for the two daughters at spouses death. Any Ideas would be appreciated



If a trust is the IRA beneficiary, no spousal rollover is possible with an incompetent spouse. It’s rare that a spousal rollover would be possible whenever the spouse is not named as the primary beneficiary. A trust with the spouse as the primary beneficiary and the daughters as remainder beneficiaries will require that daughters use spouse’s remaining actuarial life expectancy from IRS tables once the spouse dies. The husband could name the daughters as primary beneficiaries and the spouse as contingent. That way the daughters could do partial disclaimers if there are not enough funds to care for the mother.

While it’s unlikely to work in this case, it’s not at all rare to have a spousal rollover where the spouse is not the named beneficiary.  See my article on this subject in the October 1997 issue of Estate Planning:  http://www.kkwc.com/docs/AR20050125164755.pdf. As Mary Kay pointed out, if the IRA owner leaves the IRA in trust for his wife, at best it can be stretched over the wife’s life expectancy.  That’s not a particularly good result.He might instead leave the IRA to or in trust for his daughters, or perhaps the grandchildren to get a longer stretch.For more on trusts as beneficiaries, see my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  http://www.kkwc.com/docs/AR20041209132954.pdf.

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