PLR 201902023



PLR 201902023IRS has issued a favorable ruling dealing with a decedent’s living revocable trust, which in turn established a subtrust to hold the benefits and distributions from his traditional IRA. IRS concluded that because she was the sole beneficiary of the subtrust, the decedent's surviving spouse is the IRA’s designated beneficiary for purposes of computing required distributions. IRS also concluded that distributions from the IRA to the spouse, who is younger than the decedent was, may be based on her life expectancy. Background. In general, taxpayers must start taking annual required minimum distributions (RMDs) from traditional IRAs at their required beginning date (RBD)-–i.e., April 1 of the year following the year in which the owner attains age 70 ?. (Code Sec. 401(a)(9)(C)(i)(I); Reg. § 1.408-8, Q&A 3) Where the IRA owner dies after the RBD, any balance remaining in the IRA must be distributed under the following rules. If the IRA owner did not designate a beneficiary, the payout period after his death is determined by his remaining life expectancy. (Reg. § 1.401(a)(9)-5, Q&A 5(a)(2) and Q&A 5(c)(3)) The remaining life expectancy is the life expectancy factor in the Single Life Table of Reg. § 1.401(a)(9)-9, Q&A 1, for the IRA owner's age as of his birthday in the year of death, reduced by 1 for each elapsed year since the year of death. (Reg. § 1.401(a)(9)-5, Q&A 5(c)(3)) If the IRA owner designated a non-spouse beneficiary, the IRA balance is paid out over the longer of: The remaining life expectancy of the designated beneficiary, using his attained age in the year immediately following the year of the IRA owner's death (Reg. §1.401(a)(9)-5, Q&A 5(a)(1)(i), Q&A 5(c)(1)), or The remaining life expectancy of the IRA owner, using the owner's attained age in the year of his death. (Reg. § 1.401(a)(9)-5, Q&A 5(a)(1)(ii), Reg. §1.401(a)(9)-5, Q&A 5(c)(3)) In either case, the life expectancy is found in the Single-Life Table at Reg. § 1.401(a)(9)-9, Q&A 1. (Reg. § 1.401(a)(9)-5, Q&A 6) If the IRA owner designated his or her spouse as the account's sole designated beneficiary, the required distribution for each post-death year is determined with reference to the longer of: The remaining life expectancy of the surviving-spouse beneficiary, using the beneficiary’s life expectancy for each distribution year (Reg. § 1.401(a)(9)-5, Q&A 5(a)(1)(i), Q&A 5(c)(1)), or The remaining life expectancy of the IRA owner, using the owner's attained age in the year of death and subtracting one for each year that elapses after the year of death. (Reg. § 1.401(a)(9)-5, Q&A 5(a)(1)(ii), Reg. §1.401(a)(9)-5, Q&A 5(c)(3)) In either case, the life expectancy is found in the Single-Life Table at Reg. § 1.401(a)(9)-9, Q&A 1, (Reg. § 1.401(a)(9)-5, Q&A 6) Observation. Where the spouse-beneficiary is younger than the IRA owner was, option (A), above, will produce the longer life expectancy (and therefore the smallest annual RMD) for each payout year. Trust as IRA beneficiary. In general, only an individual may be a designated beneficiary for purposes of calculating distributions after the IRA owner dies. Someone other than an individual, such as the IRA owner's estate, can't be a designated beneficiary. (Reg. § 1.401(a)(9)-4, Q&A 3) However, the beneficiaries of a trust (with respect to the trust's interest in the IRA owner's benefits) are treated as designated beneficiaries of the IRA if the following requirements are met for any period during which RMDs are being determined by treating trust beneficiaries as designated beneficiaries of the IRA owner: The trust is a valid trust under state law or would be valid if it were funded; The trust is irrevocable, or will, by its terms, become irrevocable upon the death of the IRA owner; The beneficiaries of the trust can be identified; and The documentation required by Reg. §1.401(a)(9)-4, Q&A 6, is timely provided to the IRA trustee (i.e., provided by Oct. 31 of the calendar year following the year in which the IRA owner died). (Reg. § 1.401(a)(9)-4, Q&A 5(b); Reg. § 1.408-8, Q&A 1(b)) Where the beneficiary of the trust named as beneficiary of an IRA is another trust, the beneficiaries of the other trust are treated as having been designated as beneficiaries of the first trust, and thus, as having been designated by the IRA owner for purposes of determining the distribution period under Code Sec. 401(a)(9)(A)(ii), if the requirements of Reg. § 1.401(a)(9)-4, Q&A-5(b), are satisfied with respect to such other trust in addition to the trust named as beneficiary. (Reg. § 1.401(a)(9)-4, Q&A 5(d); Reg. § 1.408-8, Q&A 1(b)) Facts. Decedent established Trust, a living revocable trust, which in turn established Subtrust to hold the benefits and distributions from any retirement plan, including a traditional IRA. Decedent died after his RBD and after distributions from his IRA had begun. Trust and Subtrust became irrevocable upon Decedent's death. When he died, Decedent held an IRA that named Trust as the designated beneficiary. Before Oct. 31 of the calendar year immediately following the calendar year of Decedent's death, the trustee delivered the document for Trust and Subtrust to the IRA custodian. The terms of Trust provide that all property held by Subtrust will be held, administered, and distributed for the benefit of Beneficiary, Decedent's spouse, who is younger than the IRA owner was. Trust's terms provide that she is the sole beneficiary of Subtrust, and that all retirement benefits distributed to Trustee, including RMDs, are to be paid directly to Beneficiary upon receipt by Trustee, so that Trustee will serve as a conduit only. Upon Beneficiary's death, Trust provided that any tax-qualified retirement plans or accounts, including the remaining assets of Subtrust, will be divided equally between and distributed to Decedent's children or their descendants.Bob what Ruling requests. IRS was asked to rule that The requirements of Reg. § 1.401(a)(9)-4, Q&A-5 are satisfied with respect to Trust and Subtrust and therefore the individual Beneficiary of Subtrust is treated as the designated beneficiary of the IRA for purposes of determining the applicable distribution period under Code Sec. 401(a)(9); and The applicable distribution period for Decedent's IRA is to be calculated based on the life expectancy of Beneficiary. Favorable rulings. The PLR says that Trust's document identifies Beneficiary as the sole beneficiary of the Subtrust in accordance with Reg. §1.401(a)(9)-4, Q&A-5(b)(3). In addition, Trust's document requires Trustee to pay Beneficiary any and all funds in Subtrust withdrawn by the trustee, including RMDs, and there can be no accumulation on behalf of any other beneficiary. As a result, the PLR concludes that the requirements of Reg. § 1.401(a)(9)-4, Q&A-5, are met with respect to Trust and Subtrust and that the beneficiary of Subtrust—Decedent’s spouse—is treated as the sole designated beneficiary of decedent’s IRA. IRS also ruled that because Beneficiary's life expectancy is longer than Decedent's, the applicable distribution period for Decedent's IRA should be based on the life expectancy of Beneficiary, the surviving spouse. Observation: A surviving spouse designated as sole beneficiary of an IRA can treat the IRA as her own, enabling the spouse to, among other things, name his or her own beneficiaries for the IRA. This may produce results that turn out to be unsatisfactory for a decedent with children and grandchildren (e.g., surviving spouse remarries and names his or her new spouse, or stepchildren, as beneficiaries). The private ruling shows one way to effectively leave an IRA to a spouse and avoid this undesirable result. Through the trust and the subtrust, the surviving spouse gets RMDs as if she were designated the sole beneficiary of the IRA, but when he or she dies, the trust provides that any remaining assets of the subtrust holding the benefits and distributions from the IRA, are to be distributed in equal amounts to Decedent's children or their descendants. References: For IRA minimum distribution rules, see FTC 2d/FIN ? H-12264.2; United States Tax Reporter ? 4084.03.[ top ] ................
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