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Help.
I wanted to run this scenario by the board. I don't think I'm going to get the answer I'm hoping for.
I have a husband and wife, where the wife passed away. The husband is a professor at a prestigous Southern California university.
The estate basically has the following assets:
A house valued at 2.2 million dollars
Cash accounts totalling around $100,000
Mutual fund worth $50,000
wife's IRA $150,000
various retirement accounts of husband valued at 3.5 million dollars
The house, cash accounts, and mutual fund were all transferred into a living trust during the settlor's lives and all of these assets are properly titled.
The wife's IRA names the trust as the beneficiary and the husbands various retirement accounts name the living trust as a beneficiary.
The retirement accounts are considered to be community property, because all was accumulated while husband and wife were married.
Here is the problem. There were no gift tax returns filed by either spouse, so the wife's full exemption of 2 million is available. I don't see any way that I can fund the Bypass trust for the full 2 million dollars?
If the husband had predeceased his wife, then I would have added his 3.5 million of retirement accounts to the trust assets, but I believe I can't add them right now because they are in his name only. In other words he has the right to change the beneficiary and is not obliged to keep the trust as the beneficiary. I do plan on adding the wife's IRA to the trust assets. I believe I end up with gross trust assets totalling $2,500,000. When this amount is halved for the wife's community property share, the bypass trust can only be funded for $1,250,000 and around $750,000 of exemption is wasted.
Is this correct, or am I missing something?
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| Just a follow up on my previous post, I was listing the gross assets of the trust and not just the wife's community property share.
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Power Member
Group: Forum Members
Last Login: 2 days ago @ 11:00:56 AM
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Visits: 489
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| This is a case where you really wish they had an aggregate community property agreement that allowed funding considering all of the assets (not just trust assets) and allocated all retirement plan assets to the second to die. I agree that you wouldn't be able to fully fund the trust at $2 million. Maybe some of the legal folks who post here might discuss some type of reformation of the agreements; I never know when that is something that's appropriate or possible.
Mary Kay Foss
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I discussed this with one other person in the office to see if anything could have been done to prevent it. He had an interesting point, but I've never seen it done. He explained that sometimes in divorce settlements, that one spouse will roll over part of their pension plan to the ex-spouse. He was speculating but not sure if a spouse could make a gift of part of their pension plan and roll it over to the other spouse with a trustee to trustee transfer, while both spouses are alive.
By doing this you can even up the estate for estate planning purposes and it is assumed that because it is a gift to a spouse that there are no gift tax ramifications.
I have only seen spousal rollovers upon the death of a spouse. Does anybody know if you can do it while both are alive and not have any income tax consequences from doing it?
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Member
Group: Forum Members
Last Login: 12/18/2008 8:19:53 PM
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| I usually don't reply to posters who haven't registered, but....this is an interesting issue. I agree with Mary Kay about the aggregate agreement. Aside from tax consequences, if there is a pour over will, look at Probate Code Section 5020 for support for the notion that a 50% interest in the survivor's plan may be subject to it if an executor can avoid the transfer. This is untested water afaik, and am not aware of anyone having litigated this issue.
John Jacobson
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Power Member
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The only way that splitting a qualified retirement plan is allowed in a divorce is with a QDRO; a gift isn't possible. At one time IRS was issuing rulings stating that IRAs could be split or exchanged along commmunity property lines to facilitate estate planning. In 1999 they came out with a lengthy PLR that said that IRAs were community property but an attempt to split them before death or divorce would be taxable.
Mary Kay Foss
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