Surviving spouse is treated as IRA beneficiary through a conduit trust

Plain-English summary

An IRA owner died after required minimum distributions had begun and had named a revocable trust as the IRA beneficiary. At death the trust became irrevocable, and its subtrust required every retirement-plan distribution to be paid directly to the owner's surviving spouse, who was its sole current beneficiary. The trustee also timely supplied the trust documents to the IRA custodian. The IRS ruled that the trust and subtrust met the look-through requirements of Treasury Regulation § 1.401(a)(9)-4, Q&A-5, so the spouse is treated as the IRA's sole designated beneficiary. Because the spouse was younger and had the longer remaining life expectancy, the IRA's applicable distribution period is based on the spouse's life expectancy. The ruling assumes the IRA remained valid and the spouse was still a beneficiary on the required determination date.

Ruling snapshot

• Question: May a surviving spouse who is the sole conduit-trust beneficiary be treated as the IRA's designated beneficiary, with distributions measured by the spouse's life expectancy?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(9), 408(a)(6); Treas. Reg. §§ 1.401(a)(9)-4, 1.401(a)(9)-5, 1.408-8

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201902023                                               Third Party Communication: None
Release Date: 1/11/2019                                         Date of Communication: Not Applicable
Index Number: 401.06-00
                                                                Person To Contact:
-----------------------                                         -------------------------, ID No. -----------------
------------------------                                        -----------------------------------------------------
------------------------------                                  Telephone Number:
                                                                --------------------
                                                                Refer Reply To:
                                                                CC:TEGE:EB:QP3
                                                                PLR-113361-18
                                                                Date:
                                                                October 15, 2018


Decedent                         = ------------------------
Trust                            = --------------------------------------------
Subtrust                         = ---------------------------------------------------------
Trustee                          = ----------------------
Beneficiary                      = ----------------------
Date 1                           = -----------------------
Date 2                           = ------------------
Date 3                           = ----------------
Date 4                           = -----------------
Date 5                           = --------------------
State X                          = ---------

Dear ---------------:

This is in response to the April 13, 2018 letter, supplemented by correspondence dated
July 6, 2018 and October 11, 2018, submitted on your behalf by your authorized
representative, in which you request a letter ruling under section 401(a)(9) of the
Internal Revenue Code (“Code”) and its corresponding Treasury Regulations.

The following facts and representations have been submitted under penalty of perjury in
support of the requested ruling:

Decedent established the Trust, a living revocable trust, on Date 1, subsequently
amended and restated in its entirety on Date 2. The Trust document establishes a
Subtrust to hold the benefits and distributions from any retirement plan, including a
traditional individual retirement account (IRA). The Trust and Subtrust are valid under
the laws of State X. Decedent died on Date 3, after his required beginning date under
section 401(a)(9) and after distributions under the IRA had begun. The Trust and
Subtrust became irrevocable upon Decedent’s death.

At the time of death, Decedent held an IRA. The IRA adoption agreement, executed on

Date 4, names the Trust as the designated beneficiary. Prior to October 31 of the
calendar year immediately following the calendar year of Decedent’s death, on Date 5,
the Trustee delivered the Trust document for the Trust and Subtrust to the IRA
custodian.

The terms of the Trust document governing the Subtrust provide that all property held
by the Subtrust will be held, administered, and distributed for the benefit of Beneficiary.
The Trust document further states that Beneficiary shall be the sole beneficiary of the
Subtrust, and that all retirement benefits distributed to the Trustee, including required
minimum distributions, shall be paid directly to the Beneficiary upon receipt by the
Trustee, so that the Trustee shall serve as a conduit only. It also states that upon
Beneficiary’s death, any tax-qualified retirement plans or accounts, including the
remaining assets of the Subtrust, shall be divided equally between and distributed to
Decedent’s children or their descendants.

Finally, you have represented that Beneficiary is Decedent’s surviving spouse and that
Decedent was older than Beneficiary.

Based on the foregoing, you request the following rulings:

   1) The requirements of section 1.401(a)(9)-4, Q&A-5 are satisfied with respect to
      the Trust and the Subtrust and therefore the individual Beneficiary of the Subtrust
      is treated as the designated beneficiary of the IRA for purposes of determining
      the applicable distribution period under section 401(a)(9); and

   2) The applicable distribution period for Decedent’s IRA is to be calculated based
      on the life expectancy of Beneficiary.

Under section 401(a)(9)(A), a trust will not be considered qualified unless the plan
provides that the entire interest of each employee (1) will be distributed to such
employee not later than the required beginning date, or (2) will be distributed, beginning
no later than the required beginning date, over the life of such employee or over the
lives of such employee and a designated beneficiary or over a period not extending
beyond the life expectancy of such employee or the life expectancy of such employee
and a designated beneficiary.

Section 401(a)(9)(B)(i) provides that a trust shall not constitute a qualified trust under
the Code unless the plan provides that if the distribution of the employee’s interest has
begun in accordance with section 401(a)(9)(A)(ii), and the employee dies before his
entire interest has been distributed to him, the remaining portion of such interest will be
distributed at least as rapidly as under the method being used under section
401(a)(9)(A)(ii) as of the date of death.

Section 401(a)(9)(C)(i) provides that “required beginning date” means April 1 of the

calendar year following the later of (1) the calendar year in which the employee turns
age 70 1/2, or (2) the calendar year in which the employee retires.

Section 401(a)(9)(E) provides that “designated beneficiary” means any individual
designated as a beneficiary by the employee.

Section 1.401(a)(9)-4, Q&A-1, provides, in relevant part, that a designated beneficiary is
an individual who is designated as a beneficiary under the plan. An individual may be
designated as a beneficiary under the plan either by the terms of the plan or, if the plan
so provides, by an affirmative election by the employee (or the employee’s surviving
spouse) specifying the beneficiary. A designated beneficiary need not be specified by
name in the plan in order to be a designated beneficiary so long as the individual who is
to be the beneficiary is identifiable under the plan. The member of a class of
beneficiaries capable of contraction or expansion will be treated as being identifiable if it
is possible to identify the class member with the shortest life expectancy.

Section 1.401(a)(9)-4, Q&A-3, provides that only individuals may be designated
beneficiaries for purposes of section 401(a)(9). A person who is not an individual, such
as the employee’s estate or a charitable organization, may not be a designated
beneficiary. If a person other than an individual is designated as a beneficiary of an
employee’s benefit, the employee will be treated as having no designated beneficiary
for purposes of section 401(a)(9), even if there are also individuals designated as
beneficiaries.

Section 1.401(a)(9)-4, Q&A-4, provides in relevant part, that in order to be a designated
beneficiary, an individual must be a beneficiary as of the date of the employee’s death.
Generally, an employee’s designated beneficiary will be determined based on the
beneficiaries designated as of the date of death who remain beneficiaries as of
September 30 of the calendar year following the calendar year of the date of death.

Section 1.401(a)(9)-4, Q&A-5, provides that where a trust is named as a beneficiary of
an employee, the trust is not a designated beneficiary; however, beneficiaries of the
trust with respect to the trust’s interest in the employee’s benefit may be treated as
designated beneficiaries if the following requirements are met: (1) the trust is valid
under state law, or would be but for the fact there is no corpus; (2) the trust is
irrevocable or will, by its terms, become irrevocable upon the death of the employee; (3)
the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in
the employee’s benefit are identifiable within the meaning of section 1.401(a)(9)-4,
Q&A-1, from the trust instrument; and (4) the documentation described in section
1.401(a)(9)-4, Q&A-6, has been provided to the plan administrator.

Section 1.401(a)(9)-4, Q&A-5(c), states that in the case of payments to a trust having
more than one beneficiary, see A-7 of Section 1.401(a)(9)-5 for the rules for determining
the designated beneficiary whose life expectancy will be used to determine the

distribution period.

Section 1.401(a)(9)-4, Q&A-5(d), states that if the beneficiary of the trust named as
beneficiary of an employee’s interest is another trust, the beneficiaries of the other trust
will be treated as having been designated as beneficiaries of the first trust, and thus, as
having been designated by the employee under the plan for purposes of determining
the distribution period under section 401(a)(9)(A)(ii), provided that the requirements of
section 1.401(a)(9)-4, Q&A-5(b), are satisfied with respect to such other trust in addition
to the trust named as beneficiary.

Section 1.401(a)(9)-4, Q&A-6(b), states, in relevant part, with respect to required
minimum distributions after the death of an employee, that documentation described
therein must be provided by the trustee of the trust/beneficiary to the plan administrator
by October 31 of the calendar year following the calendar year in which the employee
died. Such documentation includes a copy of the actual trust document for the trust that
is named as a beneficiary of the employee under the plan as of the employee’s date of
death.

Section 1.401(a)(9)-5, Q&A-5(a), provides, in relevant part, that if an employee dies
after distribution of his interest has begun (generally on or after the employee's required
beginning date) and the employee’s sole designated beneficiary as of the date
determined under section 1.401(a)(9)-4, Q&A-4, is his or her spouse, in order to satisfy
section 401(a)(9)(B)(i), the applicable distribution period for distribution calendar years
after the distribution calendar year containing the employee's date of death is the longer
of (i) the remaining life expectancy of the employee's surviving spouse determined in
accordance with section 1.401(a)(9)-5, Q&A-5(c)(2), and (ii) the remaining life
expectancy of the employee determined in accordance with section 1.401(a)(9)-5, Q&A-
5(c)(3).

Section 1.401(a)(9)-5, Q&A-5(c)(2), provides that if the surviving spouse of an employee
is the employee’s sole beneficiary, the applicable distribution period is measured by the
surviving spouse’s life expectancy using the surviving spouse’s birthday for each
distribution calendar year after the calendar year of the employee’s death up through
the calendar year of the spouse’s death. For calendar years after the calendar year of
the spouse’s death, the applicable distribution period is the life expectancy of the
spouse using the age of the spouse as of the spouse’s birthday in the calendar year of
the spouse’s death, reduced by one for each calendar year that has elapsed after the
calendar year of the spouse’s death.

Section 1.401(a)(9)-5, Q&A-5(c)(3), provides that if an employee does not have a
designated beneficiary, the applicable distribution period measured by the employee’s
remaining life expectancy is the life expectancy of the employee using the age of the
employee as of the employee’s birthday in the calendar year of the employee’s death.
In subsequent calendar years the applicable distribution period is reduced by one for

each calendar year that has elapsed after the calendar year of the employee’s death.

Section 1.401(a)(9)-9, Q&A-1, provides the Single Life Table for use in determining the
life expectancy of an individual.

Section 1.401(a)(9)-5, Q&A-7, provides, in general, that if more than one beneficiary is
designated as a beneficiary by an employee as of the applicable date for determining
the designated beneficiary under section 1.401(a)(9)-4, Q&A-4, the beneficiary with the
shortest life expectancy will be the designated beneficiary for purposes of determining
required distributions.

Section 1.401(a)(9)-5, Q&A-7(b), provides that except as provided in section
1.401(a)(9)-5, Q&A-7(c)(1), contingent beneficiaries of the interest of an employee must
be considered for purposes of determining which life expectancy to use for purposes of
computing minimum required distributions.

Section 1.401(a)(9)-5, Q&A-7(c)(1), provides that a person will not be considered a
beneficiary for purposes of computing section 401(a)(9) minimum required distributions
merely because the person could become the successor to the interest of one of the
employee’s beneficiaries after the death of said beneficiary. However, this rule does not
apply to a person who has any right (including a contingent right) to an employee’s
benefit beyond being a mere potential successor to the interest of one of the
employee’s beneficiaries upon that beneficiary’s death.

Section 408(a)(6) provides that, with respect to IRAs, under regulations prescribed by
the Secretary, rules similar to the rules of section 401(a)(9) shall apply to the distribution
of the entire interest of an individual for whose benefit the trust is maintained.

Section 1.408-8, Q&A-1(a), provides that an IRA is subject to the required minimum
distribution rules provided in section 401(a)(9). In order to satisfy section 401(a)(9), the
rules of sections 1.401(a)(9)-1 through 1.401(a)(9)-9 must be applied, except as
otherwise provided.

Section 1.408-8, Q&A-1(b), provides, as relevant, that for purposes of applying the
required minimum distribution rules in sections 1.401(a)(9)-1 through 1.401(a)(9)-9, the
IRA trustee, custodian or issuer is treated as the plan administrator, and the IRA owner
is substituted for the employee.

Section 1.408-8, Q&A-3 provides that in the case of distributions from an IRA, the term
“required beginning date” means April 1 of the calendar year following the calendar year
in which the individual attains age 70 1/2.

With respect to your first ruling request, you have represented that the Trust is valid and
irrevocable and that the required documentation has been provided, in accordance with

section 1.401(a)(9)-4, Q&A-5(b)(1), (2), and (4). The Trust document identifies
Beneficiary as the sole beneficiary of the Subtrust in accordance with section
1.401(a)(9)-4, Q&A-5(b)(3). In addition, the Trust document requires the Trustee to pay
Beneficiary any and all funds in the Subtrust withdrawn by the Trustee, including
required minimum distributions under section 401(a)(9), and there can be no
accumulation on behalf of any other beneficiary. Therefore, we conclude that the
requirements of section 1.401(a)(9)-4, Q&A-5, are met with respect to the Trust and the
Subtrust and that the individual Beneficiary of the Subtrust is treated as the sole
designated beneficiary of Decedent’s IRA.

With respect to your second ruling request, under section 1.401(a)(9)-5, Q&A-5(a), the
applicable distribution period for distribution calendar years after the distribution
calendar year containing Decedent’s death is the longer of (i) the remaining life
expectancy of Beneficiary determined in accordance with section 1.401(a)(9)-5, Q&A-
5(c)(2), and (ii) the remaining life expectancy of Decedent determined in accordance
with section 1.401(a)(9)-5, Q&A-5(c)(3). Because Beneficiary’s life expectancy is longer
than Decedent’s, the applicable distribution period for Decedent’s IRA is based on the
life expectancy of Beneficiary.

This letter ruling is based on the assumption that Decedent’s IRA referenced herein was
and is valid within the meaning of section 408 at all times relevant thereto. This letter
ruling is also based on the assumption that Beneficiary remained a beneficiary on
September 30 of the calendar year following the calendar year of Decedent’s death,
pursuant to section 1.401(a)(9)-4, Q&A-4(a).

This letter ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

Except as specifically set forth above, no opinion is expressed or implied concerning the
federal tax consequences of the proposed transaction under any other provision of the
Code or regulations.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party, as specified in Rev. Proc. 2018-1, § 7.01(16)(b). This office
has not verified any of the material submitted in support of the request for ruling, and
such material is subject to verification on examination. The Associate office will revoke
or modify a letter ruling and apply the revocation retroactively if there has been a
misstatement or omission of controlling facts; the facts at the time of the transaction are
materially different from the controlling facts on which the ruling was based; or, in the
case of a transaction involving a continuing action or series of actions, the controlling
facts change during the course of the transaction. See Rev. Proc. 2018-1, § 11.05.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.



                                       Sincerely,



                                       John T. Ricotta
                                       Branch Chief
                                       Qualified Plans Branch 3
                                       (Tax Exempt & Government Entities)