Probate & Trust Law Section Conference Manual ... - Minnesota CLE

As the statute indicates, the Minnesota applicable exclusion amount does not exceed $1,000,000 under the
current legislation.
III.
MARITAL DEDUCTION PLANNING WITH IRAS AND QUALIFIED PLANS
A. General
1. IRA and qualified plan assets are included in the decedent’s gross estate for estate tax
purposes. If these assets are left to or for the benefit of a surviving spouse, they can qualify
for the marital deduction under § 2056. The easiest way to leave assets to a surviving spouse
is to name the spouse outright as the sole beneficiary. A surviving spouse has special
privileges that are not available to other beneficiaries. One of the most significant privileges
is that a surviving spouse may roll an IRA over into her own name and treat the assets as her
own. If done properly, this rollover does not trigger any income tax consequences, and the
surviving spouse may then name her own beneficiary and calculate her minimum distributions
using her own age and the Uniform Lifetime Table. In effect, this can help to defer the
recognition of income tax on the IRA for a longer period of time.
2. Any time you are planning for retirement assets with a married client, you need to keep in
mind the Retirement Equity Act of 1984 (“REA”). Pub. L. No. 98-397. REA is designed to
protect retirement benefits for the non-participant spouse. If the client wants to name someone
other than his spouse, REA may require that the spouse consent to the non-spouse beneficiary
in writing. Be sure to read the account documents carefully to determine if REA applies.
REA is governed by §§ 401(a)(11) and 417 and the applicable regulations that are mirrored in
ERISA 205. Traditional IRAs and Roth IRAs are not subject to REA.
B. Roll-over
1. A surviving spouse has the ability to roll over the decedent’s IRA to her own IRA. In order to
do a tax-free roll-over, the surviving spouse must deposit the proceeds from the IRA into her
own IRA within sixty days of taking the distribution. § 408(d)(3). You may be able to obtain a
waiver of the sixty-day requirement in the case of hardship. Rev. Proc. 2003-16.
2. Other types of qualified accounts, such as §§ 401(k) or 403(b) plans, might not allow the
spouse the opportunity to roll the account over. In that case, the spouse may be able to take a
lump sum distribution from the qualified account and place the assets into her own IRA
without any income tax consequences. If the spouse is named as the outright beneficiary and
chooses not to roll the IRA over into her own name, she still has other advantages to help
defer the income tax consequences. If the participant died before his required beginning date,
the surviving spouse does not need to start taking distributions in the year following death, but
can choose to start taking distributions at the later of the year following death or the year the
participant would have reached his required beginning date. Also, if the participant died
before his required beginning date, the spouse’s life expectancy is treated as a recalculated life
expectancy as long as the spouse is the sole designated beneficiary on the designation date
(September 30 of the year after the participant’s death). When the surviving spouse dies, the
life expectancy then becomes a non-recalculated life expectancy and is reduced by one each
year.
Example: Fred dies at the age of sixty-seven (before his required beginning
date), survived by his wife, Wilma, who is only sixty years old. Fred had a $200,000
IRA that Wilma decides not to roll over into her own IRA. Unlike George in the
previous example, Wilma does not need to start taking distributions from the IRA for
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