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

vii.
viii.
Income taxes. Amounts distributed to S from the CRT are
taxed in the usual way. IRC § 664(b)(1)-(4). Because the
entire retirement account will typically constitute IRD, it is
likely that all payments to S will consist entirely of
ordinary income. IRC § 691.
Tax exemption. The CRT is exempt from federal income
tax. IRC § 664(c). Thus, even though the distribution of
the account will constitute IRD to the CRT and will be
included in the CRT’s gross income, the CRT should pay
no income tax.
b. QTIP Funded with Retirement Account.
i. P designates a QTIP marital trust for S as beneficiary of the
retirement account if S survives P, and the charity as
contingent beneficiary if S predeceases P.
a) QTIP must distribute all of its income to S annually.
IRC § 2056(b)(7)(B)(ii).All income means the
income on assets in the QTIP and income on the
assets that remain in the retirement account. Rev.
Rul. 2000-2, 2001-1 C.B. 305, 1/05/2000; Rev. Rul.
2006-26, 2006-1 C.B. 939, 05/04/2006. The
provisions of the QTIP must be drafted to make this
requirement clear.
ii.
iii.
iv.
At S’s death, the balance remaining in the retirement
account and all property in the QTIP will be distributed to
the designated charity.
RMDs. The retirement account can distribute its assets to
the QTIP over S’s life expectancy only if the QTIP
qualifies as a “see through” trust which allows that result;
the QTIP must provide that the RMD amount will be
distributed to S from the QTIP each year.
Estate tax. If S survives P, the retirement account qualifies
for an estate tax marital deduction in P’s estate. IRC §
2056(b)(7)(B)(ii). All assets remaining in the QTIP and the
retirement account at S’s death will be included in S’s
federal gross estate. IRC § 2044. The entire QTIP Trust
will qualify for an estate tax charitable deduction at S’s
death. IRC § 2055(a). See PLR 9532026. If S predeceases
P, the account passes to the charitable beneficiary and
qualifies for the estate tax charitable deduction.
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