Iras And Estate Tax

<div class="Section1">Yes, if benefits pass to the surviving spouse in a form that qualifies for the marital deduction.<a href="#_ftn1" name="_ftnref1">¹</a> Thus, an outright transfer of the IRA account balance to the surviving spouse should qualify for the marital deduction. A marital deduction also should be available if any income or principal distributed while the surviving spouse is alive is distributed to the surviving spouse and remaining principal and income, if any, is distributed to the surviving spouse&rsquo;s estate at death.<div class="Section1"><br /> <br /> A marital deduction also should be available if all income from the IRA is distributed at least annually to the surviving spouse and the surviving spouse is given a general power to appoint the IRA to himself or herself or to his or her estate.<a href="#_ftn2" name="_ftnref2">²</a> Additionally, a marital deduction should be available if all income from the IRA is distributed at least annually to the surviving spouse, no one has the power to distribute any part of the IRA to anyone other than the surviving spouse, and the executor makes a qualified terminable interest property (&ldquo;QTIP&rdquo;) election.<a href="#_ftn3" name="_ftnref3">³</a> If the surviving spouse is given a survivor annuity where only the spouse has the right to receive payments during such spouse&rsquo;s lifetime, such interest would qualify for the QTIP marital deduction.<a href="#_ftn4" name="_ftnref4">⁴</a> In the case of a surviving spouse who is not a U.S. citizen, a qualified domestic trust generally would be required to obtain the marital deduction.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> All of the QTIP trust income must be received by the surviving spouse for life. Such income is sometimes defined by state law as unitrust interest.<br /> <br /> <hr><br /> <br /> An executor can elect to treat an IRA and a trust as QTIP if the trustee of the trust is the beneficiary of the IRA, the surviving spouse can compel the trustee to withdraw all income earned by the IRA at least annually and distribute that amount to the spouse, and no person has the power to appoint any part of the trust to any person other than the spouse.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> Prior to Revenue Ruling 2000-2, where IRA proceeds were to be distributed to a trust benefiting the survivor spouse, marital deduction requirements generally had to be met at both the IRA and the trust level.<br /> <br /> Thus, in Revenue Ruling 89-89,<a href="#_ftn7" name="_ftnref7">⁷</a> a decedent&rsquo;s executor was permitted to elect to treat a decedent&rsquo;s IRA as eligible for the QTIP marital deduction where (1) the distribution option elected by the decedent for the IRA required the principal balance of the IRA to be distributed in annual installments to a testamentary QTIP trust and the income earned on the undistributed balance of the IRA to be distributed annually to the trust, and (2) all trust income was payable annually to the decedent&rsquo;s spouse.<br /> <br /> A QTIP marital deduction was not available for an IRA with distributions payable to a marital trust where none of the IRA options provided that all income would be distributed at least annually to the marital trust.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> In determining if a spouse has been given an income interest, allocations between income and principal will be respected if state law provides that reasonable apportionments can be made between income and remainder beneficiaries of the total return of the trust (e.g., a unitrust interest in the range of 3 percent to 5 percent could be treated as an income interest).<a href="#_ftn9" name="_ftnref9">⁹</a> Revenue Ruling 2006-26<a href="#_ftn10" name="_ftnref10">¹⁰</a> provides that various means of determining income under state law are permitted under the QTIP marital deduction. Thus, income generally can be determined under state laws based on the Uniform Principal and Income Act or under general traditional statutory or common law rules that provide for allocations between income and principal.<br /> <br /> A marital deduction also may be available if IRA proceeds are paid to a charitable remainder annuity trust or unitrust and the surviving spouse is the only noncharitable beneficiary (other than certain ESOP remainder beneficiaries).<a href="#_ftn11" name="_ftnref11">¹¹</a> Presumably, the IRA would have to incorporate all the charitable deduction requirements for such a trust.<br /> <br /> For the income tax implications of distributions from a traditional IRA, <em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3671">3671</a>, and from a Roth IRA, <em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3673">3673</a>.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2056.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2056(b)(5).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2056(b)(7).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2056(b)(7)(C).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp; IRC &sect;&sect;&nbsp;2056(d), 2056A; Let. Ruls. 9544038, 9322005.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;&nbsp; Rev. Rul. 2000-2, 2000-1 CB 305, superseded by Rev. Rul. 2006-26; 2006-1 CB 939.<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;&nbsp; 1989-2 CB 231, superseded by Revenue Ruling 2000-2.<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;&nbsp; TAM 9220007.<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;&nbsp; Treas. Reg. &sect;&nbsp;1.643(b)-1.<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp; 2006-1 CB 939.<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2056(b)(8).<br /> <br /> </div></div><br />

<div class="Section1">Yes, in general, an IRA is includible in the gross estate of decedents dying after 1984. Benefits payable to a surviving spouse, however, generally will qualify for the marital deduction ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3713">3713</a>). Additionally, benefits payable to a qualified charity should qualify for a charitable deduction at the time of death.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> The value of an IRA account is not discounted for income tax payable by beneficiaries or for lack of marketability. An income tax deduction may be available for federal estate tax attributable to the IRA.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The value of an annuity or other payment receivable under an individual retirement plan or arrangement by the beneficiary of a deceased individual is includable in the decedent&rsquo;s gross estate under the rules discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="620">620</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="629">629</a>. In reading those rules, be aware that any contribution for the purchase of an annuity made by the decedent&rsquo;s employer or former employer, as under an SEP ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3701">3701</a>), is considered to be contributed by the decedent if made by reason of his or her employment.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> For estates of decedents dying after 1984, the Tax Reform Act of 1984 generally repealed the previously existing estate tax exclusion; special rules may apply for decedents dying after 1984 who separated from service before January&nbsp;1, 1985. Qualified plan benefits rolled over to an IRA after 1984 are treated as subject to the transitional rules for IRAs rather than those for qualified plans ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3993">3993</a>).<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp; Let. Rul. 199939039.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp; IRC &sect;&nbsp;691(c); <em>Est. of Smith v. U.S.</em>, 198 F. 3d 515 (5th Cir. 1999), nonacq.; <em>Est. of Kahn v. Comm.</em>, 125 TC 227 (2005); TAM 200247001.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp; IRC &sect;&nbsp;2039(b).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp; Rev. Rul. 92-22, 1992-1 CB 313; <em>Sherrill v. U.S.</em>, 415 F. Supp.&nbsp;2d 953 (N.D. Ind. 2006).<br /> <br /> </div></div><br />