An IRA is an ideal asset to qualify for the marital deduction. In addition, since an IRA is a shrinking asset due to its built-in income tax liability, a person should consider giving other assets that increase in value to a credit shelter bypass trust. An IRA should not be used to satisfy a pecuniary formula trust, since such use results in the premature recognition of income in respect of a decedent (IRD) for income tax purposes.
If a person is willing to relinquish control of an IRA after death, designating the person’s spouse as the sole beneficiary of the IRA produces the best tax results. The estate tax benefit of this beneficiary designation is that the IRA qualifies for the marital deduction in the person’s estate, and also declines in value because of its built-in income tax liability.
Learn more about beneficiary designations for IRAs …
