Equal distribution to heirs when spouse dies?

Submitted by Toby Hartley on Mon, 2014-06-30 18:53

Wife has 116K IRA, husband 345K in his. Second marriage. Each has two sons from previous marriage.

It is their desire that at the death of the first spouse the heirs of the deceased receive 50% of the total, for example 115K each if death occurred tomorrow. While leaving 50% of total with living spouse to be distributed at the second death to the heirs of second spouse.

This was easy to handle with their NQ funds, but with the IRA’s its a bit difficult. His is pretty easy, designate 1/3 to living spouse, and 1/3 to each of his sons. That should be close, and close is all we are trying for here. 2/3 of his should equal approximately 1/2 of total. Now, I know that the rate of return and the growth of the two accounts until death can change all of this, but in setting it up I can only work with what I have.

Now, for her, if she passes her boys get the 116K in equal shares but how to distribute another 115 from his? Just take the distribution and gift it? Any ideas?



Submitted by mk foss on Tue, 2014-07-01 00:18

It’s very difficult to make these things work they way that they’ve planned if the surviving spuse rolls everything over. This is my proposed solution:

  1. Husband names  trust for spouse as beneficiary for 1/3 and each son as 1/3. Then when she passes away – the trust will be divided among her sons and his sons taking into account previous distirubtion to his sons so that the boys receive equal amounts.
  2. If she dies first, she can use a trust as a beneficiary or leave a “fractional interest” in her IRAs to her sons and the balance to a trust for her husband. You need a fraction to prevent the gifts to her sons from being immediately taxable.
  3. Husband’s trust would need provisions as to what happens if spouse predeceases and wife’s trust would need something as well.
  4. I wouldn’t recommend naming each other as beneficiaries with the understanding that the spouse will “do the right thing” after a rollover at the first death. Many things can happen between now and then and the survivor could easily be persuaded to change beneficiaries later.

Submitted by Bruce Steiner on Tue, 2014-07-01 04:15

There is sometimes no other practical solution.  However, leaving the IRA to the spouse in trust defeats the rollover and the possible Roth conversion, and limits the stretch to the spouse’s life expectancy.  It’s worth looking to see if there’s another way to accomplish the desired result.

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