[WSBAPT] One spouse's IRA as community property - distribute nonparticipant interest to credit trust for surviving spouse (title owner of IRA)
John J. Sullivan
sullaw at comcast.net
Tue Feb 6 02:12:00 PST 2018
John:
Conceptually the survivor has swapped the non participant decedent’s CP share of the IRA for the note in a non pro rata distribution. We’ve already cited the statute in the RCW that says decedent’s will, even residuary clause, disposes of decedent’s share of IRA. The decedent cannot dispose of survivor’s IRA nonprobate - no control of beneficiary designation.
How does note have negative income tax consequences? And if there’s no liquidity then the estate tax liability that drives the desire to fund the CST is moot.
My cent and a half.
John Sullivan
Sent from my iPad
> On Feb 5, 2018, at 7:39 PM, John Creahan <john at cairn-law.com> wrote:
>
> I don’t think a promissory note is necessary. The promissory note assumes that the survivor has purchased an asset that would otherwise belong to the trust. Without specific guidance in the will, I would treat the nonparticipant’s interest in the survivor’s IRA as a nonprobate asset, which belongs to the survivor.
>
> While the promissory note may save Washington estate tax, it would appear to have negative income tax consequences, and there is no guarantee that the survivor’s estate will have sufficient liquidity to pay off the note.
>
> Just my $.02.
>
> John
>
>
> John Creahan
> www.cairn-law.com
> Now located in the heart of Fremont
> 3417 Evanston Ave. N, Suite 312
> Seattle, WA 98103
> 206-578-5877
>
>
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John J. Sullivan
> Sent: Monday, February 5, 2018 4:52 PM
> To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> Subject: Re: [WSBAPT] One spouse's IRA as community property - distribute nonparticipant interest to credit trust for surviving spouse (title owner of IRA)
>
> Well said, John.
>
> I would only add that I have yet to meet a custodian that would follow what the non participant spouse’s residuary clause says. I’m not sure they can legally go against the beneficiary designation in that case.
>
> If you don’t want to fund with a promissory note from the survivor, you might argue the trust has a claim against survivor’s estate when he dies - for the first decedent’s share of the IRA.
>
> John Sullivan
>
> Sent from my iPad
>
> On Feb 5, 2018, at 4:02 PM, John Creahan <john at cairn-law.com> wrote:
>
> Ralph,
> Unless the credit trust was set up specifically as a “conduit trust,” the trustee will be required to draw down the IRA in five years. A significant IRA could easily lose 40% of its value to income taxes during that time. Even if the trust is a conduit, the distributions will be measured by the surviving spouse’s life expectancy, which means drawing it down more quickly than necessary – again, increasing income taxes.
>
> If this is a nonblended family with a competent survivor, I would keep the IRA in his name, even if it means not funding the marital/credit shelter trust. (I’m not convinced that a will’s residuary clause requires the distribution of the nonparticipant’s share of her husband’s IRA to the marital trust.) It is much better to pay Washington estate tax at some future date than pay high income tax rates over the next few years.
>
> Another option, if the survivor can afford it, would be to disclaim her interest in the IRA and let it pass to their children.
>
> It’s trickier if the deceased spouse has children who would be disadvantaged.
>
> Feel free to give me a call if you would like to discuss.
>
> Thanks,
>
> John
>
>
> John Creahan
> www.cairn-law.com
> Now located in the heart of Fremont
> 3417 Evanston Ave. N, Suite 312
> Seattle, WA 98103
> 206-578-5877
>
>
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Ralph Maimon
> Sent: Monday, February 5, 2018 9:34 AM
> To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> Subject: [WSBAPT] One spouse's IRA as community property - distribute nonparticipant interest to credit trust for surviving spouse (title owner of IRA)
>
> Thanks all for the sage advice. I assumed because it was earned during the marriage, it was community property. Not sure how I missed the statute - but it is in a strange place, out of context but glad it is there.
>
> I am planning to fund the credit trust with the nonparticipating spouse’s community interest in the IRA. That is the substantial and primary asset of the participant’s assets. There will have to be a name change for that half with TIAA. If I did a TEDRA, I assume that TIAA would have to sign as well? Thoughts appreciated, especially if anyone has been down this road.
>
> Ralph Maimon
> LAW OFFICE OF RALPH MAIMON, P.S.
> 2811 E. Madison Street, Suite 202
> Seattle, WA 98112
> (206) 323-0911 Office
> (206) 462 1505 Fax
> rmaimon at maimonlaw.com
> www.maimonlaw.com
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John J. Sullivan
> Sent: Thursday, January 25, 2018 6:59 PM
> To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> Subject: Re: [WSBAPT] One spouse's IRA as community property?
>
> Jared:
>
> It’s been almost 20 years since I researched this, but my recollection is yes, the residuary clause applies. I’ll see if I can find it tomorrow.
>
> The problem is I’ve never known an IRA custodian who will go along with it.
>
> John Sullivan
>
> Sent from my iPad
>
> On Jan 25, 2018, at 4:41 PM, Jared E. Adams <jared at condieadams.com> wrote:
>
> Hi John,
>
> Thanks for responding and including the reference to RCW 6.15.020(6)! I’m interested in your additional thoughts and the thoughts of other on this issue.
>
> The RCW you cited provides “the nonparticipant, nonaccount holder spouse may transfer or distribute the community property interest of the nonparticipant, nonaccount holder spouse in the participant or account holder spouse's employee benefit plan to the nonparticipant, nonaccount holder spouse's estate, testamentary trust, inter vivos trust, or other successor or successors pursuant to the last will of the nonparticipant, nonaccount holder spouse.”
>
> I find the language that the spouse may transfer or distribute his or her CP interest somewhat ambiguous. If the deceased spouse’s Will states he or she specifically gives his or her CP interest in the IRA to someone, I think the gift is clearly valid and enforceable under the statute. But, if the spouse simply gives his or her residuary estate to a trust (or someone else), does that really control the disposition of half the surviving spouse’s IRA?
>
> In other words, I agree the nonparticipant spouse has the right to give half the IRA, but I don’t know that a residuary clause in the Will exercises that right.
>
> Does anyone know of any cases on point? I’m happy to be wrong, and I’d love to learn from others’ experiences on this.
>
> Thanks,
>
> Jared
>
>
> Jared E. Adams, JD, LL.M.
>
> Condie & Adams, PLLC
> 611 4th Avenue, Suite A
> Kirkland, WA 98033
> (voice): (425) 450-1040
> (fax): (425) 450-1041
> (email): jared at condieadams.com
> (web): www.condieadams.com
>
> Unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
>
> PLEASE READ THIS ENTIRE DISCLAIMER
> This message is from the Law Office of CONDIE & ADAMS, PLLC, and is intended only for the addressee. The information contained in this message is privileged, confidential, and protected by the attorney-client or attorney work product privileges. Unauthorized forwarding, printing, copying, distribution, disclosure or use of such information is strictly prohibited. If you are not the addressee, please promptly delete this message and notify the sender of the delivery error by return e-mail or you may call our office at (425) 450-1040. Nothing in this message should be interpreted as a digital or electronic signature that can be used to authenticate a contract or other legal document.
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John J. Sullivan
> Sent: Thursday, January 25, 2018 4:17 PM
> To: WSBA Probate & Trust Listserv
> Subject: Re: [WSBAPT] One spouse's IRA as community property?
>
> Ralph:
>
> I’ve dealt with this situation numerous times.
>
> Assuming the IRA is CP, the non-participant’s will disposes of her interest. See RCW 6.15.020(6). Odd placement. Odd provision.
>
> Usually it’s highly undesirable to force distribution of the IRA. What I usually do is have the survivor issue a promissory note to the CST if it’s important to find it.
>
> John Sullivan
>
> Sent from my iPhone
>
> On Jan 25, 2018, at 3:27 PM, Jared E. Adams <jared at condieadams.com> wrote:
>
> <image001.jpg>
> I agree one-half of the IRA would be included in her “gross estate” for estate tax purposes. But, would one-half of the IRA be included in her probate estate, and subject to disposition under her Will? Characterizing the asset as community property doesn’t necessarily make it subject to probate.
>
> Jared
>
>
> Jared E. Adams, JD, LL.M.
>
> Condie & Adams, PLLC
> 611 4th Avenue, Suite A
> Kirkland, WA 98033
> (voice): (425) 450-1040
> (fax): (425) 450-1041
> (email): jared at condieadams.com
> (web): www.condieadams.com
>
> Unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
>
> PLEASE READ THIS ENTIRE DISCLAIMER
> This message is from the Law Office of CONDIE & ADAMS, PLLC, and is intended only for the addressee. The information contained in this message is privileged, confidential, and protected by the attorney-client or attorney work product privileges. Unauthorized forwarding, printing, copying, distribution, disclosure or use of such information is strictly prohibited. If you are not the addressee, please promptly delete this message and notify the sender of the delivery error by return e-mail or you may call our office at (425) 450-1040. Nothing in this message should be interpreted as a digital or electronic signature that can be used to authenticate a contract or other legal document.
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John Creahan
> Sent: Thursday, January 25, 2018 3:04 PM
> To: WSBA Probate & Trust Listserv
> Subject: Re: [WSBAPT] One spouse's IRA as community property?
>
> Hi Ralph,
> The IRA funds are presumed to be community property, assuming the were earned during marriage, and one half would be includible in her estate. Titling in one spouse’s name is irrelevant to determining whether the account is community.
> Are you thinking about possibly funding the credit trust with the IRA assets?
> Hope this helps,
> John
>
>
> John Creahan
> www.cairn-law.com
> Now located in the heart of Fremont
> 3417 Evanston Ave. N, Suite 312
> Seattle, WA 98103
> 206-578-5877
>
>
>
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Ralph Maimon
> Sent: Thursday, January 25, 2018 2:09 PM
> To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> Subject: [WSBAPT] One spouse's IRA as community property?
>
> Folks
>
> My client’s wife died. We are probating her will. There is a credit trust. The great bulk of the estate is in the husband’s IRA with TIAA. Any thoughts as to whether the TIAA account would be considered community property, whereby half of its value can be considered part of her estate?
>
> Ralph Maimon
> LAW OFFICE OF RALPH MAIMON, P.S.
> 2811 E. Madison Street, Suite 202
> Seattle, WA 98112
> (206) 323-0911 Office
> (206) 462 1505 Fax
> rmaimon at maimonlaw.com
> www.maimonlaw.com
>
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