These interests often pose a major dilemma in estate planning. Many people have taxable estates with most of their wealth in these interests. The value is part of their taxable estates. It is also almost all taxable income subject to the income tax. The income tax can be deferred in some cases. However, that may defeat use of the retirement plan interest to fund the tax free amount under the estate tax. For instance, if a married decedent names the decedent's spouse as beneficiary of an IRA the spouse has a variety of options with regard to the IRA including rolling it over to the spouse's IRA and deferring income tax. However, the IRA left to the surviving spouse cannot be used to fund the credit shelter (family) trust in the typical estate tax saving plan. The credit shelter trust is funded with the tax free amount and is set up so that it is not in the surviving spouse's estate on his or her later death.

Since one of the things a surviving spouse can do is disclaim the IRA or retirement plan interest, thus throwing it into the pot to be disposed of by the residue provisions of a will, it is often preferable to designate the surviving spouse as the taker of the interest. That way the surviving spouse can choose what to do later, at the time of death based on what seems best at that time.

Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: donthompsonlaw@sbcglobal.net