Surviving spouse can roll over IRA proceeds received from trust.

• Author: Driscoll, David

A and C were married and created trust D, a revocable, inter vivos trust. They were the grantors, co-trustees and beneficiaries of D, which provided that the survivor would be the surviving grantor-trustee and sole beneficiary. A named D the beneficiary of her IRA and subsequently died.

D provided that, on the first death of a grantor, it would be divided into two subtrusts: subtrust E, a survivor's trust, and subtrust F, a credit shelter trust. As the surviving grantor-trustee, C has the power of allocation between the sub-trusts and is the trustee and beneficiary of both. He is also entitled to all net income from F and can invade the principal under an unascertainable standard. Further, C has the right to withdraw any or all of the income and/or principal from E, a right not limited by trustee discretion.

C proposes to (1) accept receipt of the proceeds of A's IRA as the surviving trustee of D; (2) allocate them to subtrust E; (3) withdraw the proceeds from E; and (4) roll over the funds into his IRA, all within 60 days of the original receipt of the proceeds from A's IRA.

Analysis

According to Sec. 408(d)(1), any amount paid or distributed from an IRA must be included in gross income as provided under Sec. 72. Rollover contributions meeting the Sec. 408(d)(3) requirements will not be included in gross income if the entire amount is paid into the individual's IRA within 60 days of receipt. However, Sec. 408(d) 0) does not apply to an inherited IRA; no amount transferred from an inherited IRA to another IRA may be excluded from income by reason of such transfer. In addition, the inherited account is not an IRA for purposes of determining whether any other amount is a rollover contribution.

An IRA would be inherited if the beneficiary acquired it due to the death of, another individual and he or she is not the decedent's surviving spouse. Thus, only a surviving spouse who acquires IRA proceeds may elect to treat...