¹Rev. Rul. 2000-2, IRB 2000-3, 305, obsoleting Rev. Rul. 89-89, 1989-2 CB 231.

²When there is a significant age disparity between spouses and the taxpayer has children from a prior marriage, the children may predecease the spouse. If this occurs, the children would derive no benefit from a QTIP trust; although the QTIP trust provided the taxpayer control over the assets, his grandchildren (not his children) may ultimately receive the QTIP. This may raise generation-skipping transfer tax issues, which are beyond the scope of this article.

³Sec. 2523(f) provides a similar provision for an inter vivos transfer of property.

⁴Although the surviving spouse can enjoy undiminished use of the property or income, the inclusion of the FMV in his estate can create a potential tax liability. To remedy this inequity, Sec. 2207A(a)(1) provides a right of recovery for the marginal estate tax liability imposed by the inclusion of these assets in the surviving spouse's estate. Surviving spouses may waive this right to recovery in their wills. Similarly, Sec. 2207A(b) provides a right of recovery for gift taxes imposed by lifetime transfers; compare Sec. 2207B, which provides a right of recovery for taxes imposed due to inclusion caused by a power of appointment.

⁵Each subsequent RMD must be paid by December 31 of the distribution year.

⁶The IRS issued proposed regulations (REG-130477-00, REG-130481-00, 1/17/01) that govern mandatory distributions from IRAs and other retirement plans. The rules replace the 1987 proposed regulations (EE-113-82, 7/27/87) and are effective for distributions starting in 2002. However, IRA owners can elect to use the new rules to compute their 2001 RMDs. Because the new rules provide distribution periods at least as generous as under the former proposed regulations, for purposes of this article it is assumed that an IRA owner will elect to use the new rules when computing 2001 RMDs.

⁷See Prop. Regs. Sec. 1.401(a)(9)-5, Q&A-5(a). The designated beneficiary is determined as of December 31 of the year after the year of the owner's death. When there is more than one designated beneficiary on this date, the single life expectancy of the beneficiary with the shortest life expectancy is used, according to Prop. Regs. Sec. 1.401(a)(9)-4, Q&A-4(a) and 5, Q&A-7(a). If there is no designated beneficiary (e.g., the beneficiary (or one of the co-beneficiaries) is the owner's estate or a charity), RMDs are required to be made over the remainder of the IRA owner's single life expectancy, under Prop. Regs. Sec. 1.401(a)(9)-4, Q&A-3.

⁸According to Prop. Regs. Sec. 1.401(a)(9)-4, Q&A-3(a), the beneficiary under the account is the designated beneficiary if no beneficiary is named.

⁹Prop. Regs. Sec. 1.408-8, Q&A-5, provides that, for the surviving spouse to elect to treat the owner's IRA as his own, he must be the sole IRA beneficiary and have unlimited right to withdraw amounts. These conditions are not met if a trust is named IRA beneficiary, even if the spouse is the sole trust beneficiary.

¹⁰For RMDs made during the surviving spouse's life, Prop. Regs. Sec. 1.401(a)(9)-5, Q&A-5(c)(2) and 6, provide that the distribution period is determined under Regs. Sec. 1.72-9, Table V, using the surviving spouse's actual age as of December 31 of the distribution year.

¹¹According to Prop. Regs. Sec. 1.401(a)(9)-5, Q&A-5(c)(2), for years after the year of the spouse's death, the spouse's remaining life expectancy is calculated using his age as of the birthday of the year of death. For each subsequent year, the distribution period is reduced by one for each year that has elapsed since the year immediately following the year of death.

¹²If there is no designated beneficiary as of December 31 of the year following the year of the owner's death, distributions must be made in accordance with the five-year rule, under Prop. Regs. Sec. 1.401-(a)(9)-4, Q&A-3(b). To prevent a spouse from using the five-year rule, an IRA owner can put a provision in the trust agreement prohibiting use of the rule.

¹³If no executor is appointed, qualified and acting within the U.S., Regs. Sec. 20.2056(b)-7(b)(3) allows the election to be made by any person in actual or constructive possession of the property (e.g., the trustee of an inter vivos trust included in the beneficiary's estate). The election is made on the last estate tax return filed on or before the due date (including extensions).

¹⁴Rev. Rul. 89-89, note 1 supra.

¹⁵Sec. 2056(c) provides that property will be treated as having passed from the decedent if such interest: (1) is bequeathed or devised to such person by the decedent; (2) is inherited by such person from the decedent; (3) is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as the surviving spouse of the decedent; (4) has been transferred to such person by the decedent at any time; (5) was at the time of the decedent's death, held by such person and the decedent (or by them and any other person) in joint ownership with right of survivorship; (6) can be appointed by the decedent (either alone or in conjunction with any person) and if the decedent appoints or has appointed such interest to such person or if such person takes such interest in default on the release or nonexercise of such power; or (7) consists of proceeds of life insurance on the decedent receivable by such person.

¹⁶IRS Letter Ruling 9220007 (1/27/91).

¹⁷Uniform Principal and Income Act (1997), drafted by the National Conference of Commissioners on Uniform State Tax Laws. The Act and its predecessors (the Uniform Principal and Income Acts of 1931 and 1962) were formally adopted by 41 state legislatures.