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CalCPA Estate Planning Committee Discussion Forum

California CPA magazine: October 2007

By John R. Woodford, CPA


CalCPA offers members many valuable resources on its website. Whether you deal with estate planning issues on a daily basis in your practice or just have an occasional question on topics, such as how to structure distributions from clients’ IRAs, there is a valuable resource that members can use to find answers to their questions: CalCPA’s Estate Planning Committee’s discussion forum.

You Ask, We Answer

The committee created the forum as a means for CalCPA members to post questions to committee members and the estate planning community. Often times a short query will evolve into an in-depth discussion of the issues raised.
  Responses are off-the-cuff and non­authoritative and, while intended to provide guidance to practitioners, do not supercede the need for practitioners to perform their own due diligence and seek proper technical review.
  That said, the forum provides valuable insight that may be beneficial to you and your clients.
  The Estate Planning Committee is fortunate to have a number of talented professionals who deal with estate, trust and estate planning issues daily and who help to monitor the forum.
  The forum is monitored and the committee attempts to respond to a question within 24 hours of posting.
  Previous questions, along with the responses, are archived on the forum to provide guidance to other members who may have similar issues. Forum postings can be sorted by date or topic to make scanning the forum easier. There are 130 archived questions and related responses on the forum, and by default, the forum lists the most recent question first.
The following is a sample of recent postings and the responses in the order posted; this should provide you with a flavor of the type of resources available.

Clarification on IRA Bequest

Decedent and surviving spouse have a combined net worth of $8 million, or $4 million each (community property state). Decedent has a $1 million 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 $1 million IRA and would back out 50 percent of it for the surviving spouse’s community property interest. On Schedule M, I’d list the decedent’s 50 percent 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 percent 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 spouse’s 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?

Responses: 1) Look at Probate Code Sec. 5000 et. seq. for the rights of the surviving spouse. He or she may be able to void half of the transfer.
  2) 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 percent 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.
  3) 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 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.

Missed Required Minimum Distribution

An IRA holder died in 2005 and the spouse rolled the IRA over to her own.
She did not take the required minimum distribution in 2006. Spouse died in January 2007. How do we handle the
50 percent penalty and do the beneficiaries have to take the required minimum distribution for 2007 and the missed one for 2006?

Response: The minimum distribution for 2007 should be taken by the beneficiaries by Dec. 31, 2007. The 2006 distribution should be taken if you want to get the 2006 penalty waived. Form 5329 should be attached to mom’s 2006 return and a waiver requested. The IRS cannot waive the penalty unless the distribution is taken.
I hope the above examples interests you enough that you will visit the forum and become a regular participant. Visit http://forums.calcpa.org,
and click on “Estate Planning.” 

John R. Woodford, CPA is a partner with Robertson, Woodford & Summers, LLP in Grass Valley and chair of the CalCPA?Estate Planning Committee. You can reach him at john@abacus7.com. For more information on the CalCPA Estate Planning Committee, visit www.calcpa.org/estate.