I have been instructed by a tax lawyer to list my spouse as primary beneficiary of my regular IRA with trust as contingent beneficiary.

My desire is to maximize the unified credit against estate tax to pass assets to my children.

I have segregated sufficient assets (not IRA assets) for my wifes side of the trust; however, the only other assets available for my side of the trust is my IRA that I have sole ownership of.

It appears to me that if I leave the IRA to the trust or to my children, I will get the unified credit but loose the income tax advantaged nature of the IRA through rapid distribution of the funds. However, if I leave it to my wife, I retain the income tax advantage of the IRA but loose the unified credit.

Is there some loophole I am missing that allows both my wife access and use of the money during her lifetime and the unified credit when the monies are passed on to my children?

You need to take your concerns to your tax attorney. You need to review your plan and especially your distribution options from the IRA if your trust (which you indicate will use your children as measuring lives)is your Designated Beneficiary as opposed to your wife. You need to look at projections of how much will remain in your IRA with your various beneficiary options at your death, your wife's death if she is the Designated Beneficiary and then again at your children's deaths to fully understand the impact of growth and taxes on your disposition of the account. Then you should be in a position to decide which way to go.

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[This message has been edited by P A Weick (edited 12-02-1999).]

You are on the right track.

If you name your wife as primary beneficiary and your credit shelter trust as contingent beneficiary, your wife can wait until after your death to decide whether to disclaim (refuse to accept) any or all of your benefits. But the tradeoff is that a disclaimer trust is less flexible than a mandatory credit shelter trust.

See my column on the credit shelter trust as beneficiary which will appear in the January/February 2000 issue of the CCH Journal of Retirement Planning. For more information on the publication, see CCH's website at www.cch.com.

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Bruce Steiner, attorney
(212) 986-6000 (NY office)
(201) 862-1080 (NJ office)
also admitted in FL

It's good advice to seek the help of a tax attorney or someone equally experienced in this particular area.

If your IRA is a large part, say $1 million, (perhaps as a retirement plan rollover) of your estate, then there may be some particularly ugly tax and financial planning problems upon the death of you and your spouse. My estate planning group recently studied such hypothetical situations and the potential taxes can be shocking.

You are to be commended for taking care of this now. My advice is that attorney and CPA and CFP fees are cheap relative to the tax consequences. Don't hesitate to get more than one opinion. Also consider withdrawing amounts from the IRA and spending it to enjoy your retirement.

Steve Hample, CFP