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Situation: Decedent and surviving spouse have net worth of 8 million or 4 million each (community property state). Decedent has 1 million dollar IRA in which he has named his two children as primary beneficiaries instead of his surviving spouse, even though the IRA is community property.
Ordinarily if the wife was the beneficiary, I'd list the million dollar IRA and would back out 50% of it for the surviving spouse's community property interest. On Schedule M, I'd list the decedent's 50% community property interest in the IRA for the unlimited marital deduction.
For this 706, I would assume that I back out the surviving spouse's 50% community property interest in the IRA, so that there remains a $500,000 asset on the schedule, that carries to page 3 and page 1 of the 706.
The question is what is done with the surviving spouses share of the IRA if all of the IRA is distributed to the children?
1. Did the surviving spouse make a gift to the kids?
2. Are the kids only entitled to the decedent's share?
3. If the kids get the whole IRA, is the credit trust 1 million or 1.5 million?
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Power Member
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Last Login: 1/6/2010 6:00:00 PM
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Look at Probate Code Section 5000 et. seq. for the rights of the surviving spouse. He or she may be able to void half of the transfer.
John Jacobson
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| I've had this situation where the children were the named beneficiaries on a life insurance policy (father/decedent was the insured) and filed a gift tax return for the 50% community property interest of the surviving spouse passing to the kids at the date of death. There was no gift prior to death because father/mother as owners of the policy could have changed the beneficiaries. I think you've got the same situation with your IRA if it all goes to the kids.
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Power Member
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| As to whether the kids get the spouse's half of the IRA, I'd see what the custodian provides. Some of them won't let you name a beneficiary other than the spouse without the spouse's agreement. If the custodian will allow the transfer of all of it, the spouse has made a gift of her CP interest. I agree with the anonymous poster above - there is no gift from the spouse before the date of death because the beneficiary designation could be changed at any time before that date. All that the children are receiving from the decedent is his CP interest, so the B trust could be $1.5 million instead of only $1 million.
Mary Kay Foss
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| I want to thank Mr. Woodford. I received my copy of California CPA yesterday, and was absolutely startled when I saw my question printed in it(along with the answers from other people).
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Member
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| I saw the question in the Oct issue and had a comment/question. Couldn't the Survivor's Trust be funded with other assets of equal value to the IRA and then the IRA could be allocated completely to the children without requiring a gift by the wife? I have been told that the estate is kind of like a big "pot" that the subtrusts are funded from, as long as each comes out with the proper share/value of assets, rather than 50% of each item.
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This might work but only if the trust agreement takes nonTrust assets into account for funding. The couple would need an aggregate community property agreement that would take into consideration all community property when doing the funding of the subtrusts.
Also if the trust was the beneficiary of the IRA rather than individuals, you could use the IRA in your funding but you would lose some of the ability to stretch out IRA payments because the life of the oldest beneficiary must be used when taking RMDs with a trust as IRA beneficiary.
Where have the smiley faces gone?
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