In a recent private letter ruling, the Internal Revenue Service permitted a widow to make a rollover from her deceased husbands IRA, even though the decedents ex-wife was the named beneficiary. The words "flexible" and "IRS" might not seem to belong in the same sentence, but flexibility on the part of the Service is really the only explanation for a ruling like this.
In the ruling, the decedent, who we will call Andy, died in 2001, at age 70, but before reaching age 70 1/2. Andys second wife, who we will call Bette, survived him and acted as his executrix. Andys estate included an IRA, of which Andys first wife was named as beneficiary, but she had predeceased him. Andys IRA was treated under the IRA agreement as though he had no beneficiary (i.e., Andy was treated as having named his estate as beneficiary).
Andy died without a will. Since Andy also had no lineal descendants, Bette inherited his entire estate under the applicable state laws, including all of his IRA. The most important issue on which a ruling was requested was that Bette would be permitted to roll over the IRA proceeds into an account in her own name, and the distribution rolled over would not be included in her gross income.
The Service cited the preamble of the final regs as containing the most pertinent law for this ruling. The preamble states that if a surviving spouse of an IRA owner "actually receives a distribution from the IRA, the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouses own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneficiary of the IRA owner." In other words, if the IRA had provided for the distribution to go directly to Bette, she would have had no problem rolling it over.
The Service also noted that as a general rule, "if the proceeds of a decedents IRA are payable to a decedents estate, and are paid to the personal representative of the estate who then pays them to the decedents surviving spouse as intestate beneficiary," the surviving spouse will ordinarily be treated as having received the proceeds from the estate, not from the decedent. As a result, the surviving spouse would not be eligible for a rollover of the proceeds.
However, the IRS made a distinction where, as here, "the surviving spouse is the sole personal representative and the sole intestate beneficiary of the estate" of the IRA owner. The Service declared that the general rule does not apply to a surviving spouse "who must pay the decedents IRA to herself as sole intestate beneficiary of the estate" (emphasis added).
