Disclaimers Result in IRA Passing to Decedent’s Estate of which Surviving Spouse is Sole Beneficiary; IRS Permits Spousal Rollover instead of Requiring Inherited IRA Treatment

The Decedent died at an age greater than 70.5 owning an IRA.  The 100% beneficiary of the IRA was a Trust.  The Decedent did not name a contingent beneficiary.  The Trust executed a qualified disclaimer of the IRA.  Each of the Decedent’s descendants also executed qualified disclaimers of the IRA.  As a result of these qualified disclaimers, the IRA passed to the Decedent’s estate to be governed by the Decedent’s Will under which the Decedent’s spouse was the sole beneficiary.

In PLR 201901005, the IRS ruled that for purposes of Code § 408(d)(3), the Decedent’s spouse will be treated as having acquired the IRA DIRECTLY FROM THE DECEDENT, and not from the Decedent’s estate.  Further, the Decedent’s spouse is eligible to roll over the Decedent’s IRA into such spouse’s own IRA.

Keep this ruling in mind for post-death planning of retirement benefits when the surviving spouse is not named as the IRA beneficiary.

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IRA Payable to Trust at Decedent’s Death Qualifies as Spousal Rollover

Decedent (“Husband”) and Wife created a revocable trust (“Trust”) under state law.  Upon Husband’s death, Wife became the sole Trustee of the Trust.  At the time of Husband’s death, Husband owned an IRA, and the Trust was listed as the beneficiary of the IRA.

Pursuant to the terms of the Trust, certain assets, including the IRA, were allocated to a Survivor’s Trust.  Wife was the sole income and principal beneficiary of the Survivor’s Trust.  Wife also had the unlimited right to appoint any or all of the Survivor’s Trust property, including to herself.  Wife exercised this power of appointment to distribute the assets of the IRA to a non-IRA account in the Survivor’s Trust.  Then, within sixty (60) days of such distribution, those amounts were transferred from the non-IRA account held by the Survivor’s Trust to a Rollover IRA, established in Wife’s name.

In PLR 201831004, the IRS determined that Wife is the distributee of Husband’s IRA, Husband’s IRA is NOT an inherited IRA, and Wife’s spousal rollover of assets from Husband’s IRA into a Rollover IRA (notwithstanding the fact that the assets were held in a non-IRA account before being paid over to the Rollover IRA) in Wife’s name was a valid spousal rollover.

Here, the IRS continued its position of allowing a spousal rollover of an IRA that was payable to a Trust.  But, if you want a no-hassle spousal rollover, double check that you’ve named the surviving spouse as the designated beneficiary of the IRA.

LISI 60-Second Planner: PLR201831004: Rollover of IRA Permitted. Leimberg Information Services, Inc. (LISI). August 14, 2018.