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

. The primary concern with meeting these requirements is dealing with the beneficiaries
of the trust. The trust beneficiaries must be identifiable, and they must be individuals. This
usually is not a problem for the primary beneficiary, but it can be an issue for the contingent
beneficiaries. The rules allow you to look through a trust instrument to the life expectancy of
the oldest trust beneficiary to determine the minimum required distributions, it must be
absolutely clear that none of the future beneficiaries will be older than the current oldest
beneficiary. This appears to include even remote possibilities. PLR 2002-28-025; PLR
2002-35-038. For example, if your IRA names your spouse in trust and the trust distributes to
your children on your spouse’s death, then it appears to qualify, and the spouse and children
will be considered beneficiaries. PLR 93-22-005. But what if none of your children survive
the term of the trust? If the governing instrument has a contingent distribution paragraph that
follows the intestacy laws of Minnesota, it is possible that the trust could be distributed to
your parents. MINN. STAT. § 524.2-103. Certain beneficiaries may be ignored if they are mere
potential beneficiaries, although it is not clear exactly who fits this definition. Treas. Reg.
§ 1.401(a)(9)-5, A-7(c). Unfortunately, this problem does not have a clear solution, and any
client who names a trust must be prepared for the possibility that the trust will not be a
qualified designated beneficiary.
2. If you want the trust to qualify for the marital deduction, you will also need to meet the
requirements for qualified terminable interest property (“QTIP”). For a detailed discussion on
QTIPs see chapter 4. In order to qualify the IRA or qualified plan as a QTIP trust, all income
must be distributed to the surviving spouse for life in at least annual installments.
§ 2056(b)(7)(B). Minimum required distributions from IRAs or qualified plans to the trust
might not include all of the annual income earned in the account. The all-income to the
surviving spouse rule is satisfied if the trust meets the following requirements:
a. The surviving spouse has the right to compel the trustee to withdraw from the IRA an
amount equal to all the income earned on IRA assets at least annually, and to
distribute such amounts to the surviving spouse.
b. No person (including the spouse) has the power to appoint any part of the trust
property to any person other than the spouse.
c. The IRA document contains no prohibition on withdrawal from the IRA of amounts in
excess of the annual minimum required distributions. Rev. Rul. 2000-2, 2000-1 C.B.
305.
3. Keep in mind, if the client names a QTIP trust as the beneficiary, then the surviving spouse is
not allowed to roll the account over into her own name and, therefore, does not have the
ability to extend the income tax deferral for her lifetime.
Example: Fred is the owner of a $1,000,000 IRA. He names his spouse as
the sole beneficiary of the IRA, and leaves the assets to her in an outright distribution.
Fred dies at the age of sixty-eight (before his required beginning date), and his
surviving spouse, who is sixty, rolls the account over into her own name. She names
their children as the beneficiaries of the account, and does not need to start taking
distributions from the account until she reaches the age of 70½. At that time, her
minimum required distributions would be calculated using the Uniform Lifetime
Table based on her life expectancy.
Example: Changing Example 8-5 by having Fred leave the IRA assets to his
spouse using a QTIP trust, she would not have the option of rolling the account over
into her own name. Distributions will begin when Fred would have reached his
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