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

v. Income tax. The IRA with S as beneficiary is treated the
same under as the “outright-to-spouse” method. The IRA
for the charity is treated the same as the “outright-tocharity”
method.
e. Appendix A.
5. Gifts to Children and Charity.
a. Outright Gifts.
i. P designates the charity and the children as the
beneficiaries of appropriate fractions or percentages of the
retirement account.
ii.
iii.
iv.
RMDs. If the charity’s interest is distributed out by the
beneficiary determination date, Treas. Reg. § 1.401(a)(9)-4,
Q&A-4, the children will be able to spread the payments
over their life expectancies. Treas. Reg. § 1.401(a)(9)-8,
Q&A-2. If not, then the children will receive payments
more rapidly, over P’s remaining life expectancy if P had
reached his RBD or over five years if P had not reached his
RBD. IRC § 401(a)(9)(B)(i)-(ii); Treas. Reg. §
1.401(a)(9)-3. P can avoid the risk that the charity’s share
will be distributed too late by dividing the retirement
account into two IRAs, with the charity as the beneficiary
of one and the children as the beneficiary of the other.
Estate Tax. The amount passing to the charity qualifies
for the estate tax charitable deduction. The amount passing
to the children will be included in P’s taxable estate and
may generate state and federal estate tax.
Income Tax. Distributions to the children from their share
of the retirement account (or from their separate IRA) will
be included in their gross income as IRD. An income tax
deduction will be allowed against the IRD in an amount
equal to the estate tax attributable to the IRD. IRC §
691(c). If there is more than one child, that income tax
deduction will, in effect, be allocated ratably among them.
b. CRT for Children
i. P designates a testamentary CRT for a child as beneficiary
of all or a fraction/percentage of the retirement account.
The testamentary CRT will be created in the same way as a
testamentary CRT for a spouse.
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