In a recent letter ruling, the IRS responded to an inquiry from a taxpayer whose spouse had died and designated the a trust (established by the taxpayer) as the beneficiary of his IRA account. The initial trustees were the taxpayer and her decedent spouse, and the trust terms provided that upon the decedent’s passing, the taxpayer spouse was to become the sole trustee, with express and total power to control and direct payments, add or remove trust property, and amend or revoke the trust.
The IRS ruled that the widow will be treated as having acquired her deceased spouse’s IRA directly from the decedent and not the trust, and the IRA would not be deemed inherited, allowing the widow to complete a tax-free trustee-to-trustee transfer of the IRA into an IRA in her name.
See “Decedent’s IRA May Be Transferred Tax-Free Into Widow’s IRA,” 2014 TNT 144-31 (Jul. 28, 2014).
Posted by Morgan Yuan, Esq., Associate Editor, Wealth Strategies Journal.