P R O B A T E & P R O P E R T Y
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P R O B A T E & P R O P E R T Y
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Community Property Aspects of IRAs and Qualified Plans
By S. Andrew Pharies
O ver the years, employee contribution retirement plans, such as 401(k) plans, have largely replaced defined benefit plans as the primary retirement vehicle for American workers. As workers retire, many of them choose to withdraw their accumulated retirement savings from their companies' plans and place those funds in IRAs. As the baby boom generation ages and retires, more and more families will look to their retirement savings, whether held in qualified plans or in IRAs, as their primary assets. To effectively advise clients with substantial retirement savings, estate planning lawyers must understand the legal and tax issues relating to those assets.
Many articles deal with the tax aspects of qualified plans and IRAs. Estate planning lawyers must master these vitally important issues. Despite the number of articles that discuss estate planning for qualified plans and IRAs, few articles address in any detail the state laws that affect these assets. Of particular importance to lawyers in community property states, and indeed the entire nation, is the impact of state community property laws on these assets.
This article discusses state community property law issues relating to qualified plans and IRAs. The article does not discuss the basic tax law that applies to qualified plans and IRAs; nor does it discuss the community property law of any one state. Rather, the concepts and theories discussed in this article are, for the most part, based on the majority position of the community property states.
Nature of Community Property
Community property is a legal system that governs the management and disposition of a married couple's property. Generally, the law of a community property state presumes that property a married couple acquires while residing in a community property state, except property acquired by gift or inheritance, is community property. In some states, income from or realized appreciation of one spouse's separate property is community property. Title to property does not affect the character of the property as community or separate. In fact, community property may be, and often is, held in the name of one spouse alone.
Spouses own community prop-erty in equal and undivided interests. Each spouse may dispose of his or her community property interest in an asset during life and at death. Each spouse owes the other spouse certain fiduciary duties in the management of community property, and certain states provide judicial remedies for the breach of those duties.
Absent federal preemption, assets held in a qualified plan or an IRA will be community property to the extent that contributions were made to the working spouse's account during the marriage. Accordingly, the first step in analyzing the effect of community property on qualified plans and IRAs is to determine the extent to which federal law preempts state community property law.
Community property laws set forth the rights of each spouse with respect to the management, control and disposition of community property. The Employee Retirement and Income Security Act of 1974, Pub. L. No. 97-248, 96 Stat. 324, as amended (ERISA), however, also sets forth rules that govern the management, control and disposition of qualified retirement plans. In some cases, these rules are different than the applicable community property rules. To the extent that state community property law and ERISA apply to the same asset, a lawyer must determine on which law to rely when crafting an estate plan.
Before 1997, there was considerable confusion about whether ERISA preempted state community property law. In Ablamis v. Roper, 937 F.2d 1450 (9th Cir. 1991), the Ninth Circuit held that ERISA preempted state community property law. In Boggs v. Boggs, 82 F.3d 90 (5th Cir. 1996), reh'g denied, 89 F.3d 1169 (1996), however, the Fifth Circuit held that ERISA did not preempt state community property law. The Supreme Court resolved this conflict in 1997 when it reversed the Fifth Circuit's decision in Boggs and held that ERISA preempts state community property law. Boggs v. Boggs, 117 S. Ct. 1754 (1997).
Nevertheless, many questions remain unanswered by Boggs, such as the extent to which Boggs affects IRAs. Also, the recent Ninth Circuit case of Emard v. Hughes Aircraft Co., 153 F.3d 949 (9th Cir. 1998), cert. denied sub nom. Stencel v. Emard, 119 S. Ct. 903 (1999), demonstrates that ERISA may not preempt community property laws as they relate to certain ERISA assets not discussed in Boggs.
Boggs v. Boggs
Isaac and Dorothy Boggs were married in 1949, the same year in which Isaac began working at South Central Bell in Louisiana. During their marriage, Isaac and Dorothy had three children, and they never moved out of Louisiana. Dorothy died in 1979 while Isaac was employed with South Central Bell. Dorothy's will left one-third of her estate to Isaac outright and the other two-thirds of her estate to her children subject to a usufruct interest in favor of Isaac, which, under Louisiana law, is similar to a legal life estate.
In 1980, one year after Dorothy's death, Isaac married Sandra. Five years after their marriage, in 1985, Isaac retired from South Central Bell. On his retirement, Isaac received a lump sum distribution from a defined contribution plan that he rolled over into an IRA. He also received 96 shares of AT&T stock from an ESOP. Finally, he began receiving a qualified joint and survivor annuity in the monthly amount of $1,777.67 from a defined benefit plan.
Isaac died in 1989. In his will, Isaac gave certain assets, such as the family residence, to Sandra outright and gave Sandra a usufruct interest in the balance of his estate. Shortly after Isaac's death, two of the three children of Isaac and Dorothy commenced a state court action seeking a portion of the monthly annuity payments paid to Isaac before his death, a portion of the past and future monthly annuity payments payable to Sandra, a portion of the IRA and a portion of the AT&T shares. The basis of their claim was that Dorothy's one-half community property interest in those assets passed to them on the expiration of the usufruct interest at Isaac's death.
Sandra filed a declaratory relief action in federal court claiming that ERISA preempted Louisiana community property law to the extent that state community property law would support the claim of Isaac's sons. The district court granted summary judgment in favor of Isaac's sons, Boggs v. Boggs, 849 F. Supp. 463 (1994), and a divided panel of the Fifth Circuit affirmed. Boggs, 82 F.3d 90.
The Supreme Court granted certiorari and reversed the Fifth Circuit. The majority began its opinion with the general proposition that ERISA preempts any conflicting state law. According to the Court:
We can begin, and in this case end, the analysis by simply asking if state law conflicts with the provisions of ERISA or operates to frustrate its objects. We hold that there is a conflict, which suffices to resolve the case.
Boggs, 117 S. Ct. at 1760-61. After this general statement, the Court addressed each asset at issue in the case.
The opinion first addressed the question of the annuity payments to which Sandra would be entitled in the future. Isaac's sons argued that ERISA should not preempt community property law with respect to the future annuity payments because ERISA is only concerned with payment of the annuity to the surviving spouse. The sons argued that, once the plan paid the annuity to the surviving spouse, state law should determine who has a claim to the amount that the surviving spouse will receive. If a third party, such as the sons in this case, has a claim to a portion of the paid annuity, and that claim is based on community property laws, then the claim should "'fai[l] to implicate the regulatory concerns of ERISA.'" Id. at 1761 (quoting Fort Halifax Packing Co. v. Coyne, 107 S. Ct. 2211, 2219 (1987)).
The Court disagreed. The Court first examined changes that the Retirement Equity Act of 1984, Pub. L. No. 98-387, 98 Stat. 1426 (REA), made to ERISA, such as the addition of the qualified joint and survivor annuity. According to the Court, those changes indicate that "[t]he statutory object of the qualified joint and survivor annuity provisions, along with the rest of [Section 1055 of ERISA], is to ensure a stream of income to the surviving spouse." Boggs, 117 S. Ct. at 1761. The stream of income must be received and retained by the surviving spouse. Any state law that would give a third party a right to the stream of income once received by the surviving spouse would be contrary to the Congressional intent of the qualified joint and survivor annuity provisions of REA. Accordingly, the Court reasoned that ERISA must preempt Louisiana community property law to the extent that community property law would allow a third party, including the sons, to receive any portion of the qualified joint and survivor annuity after such annuity is paid to the surviving spouse.
The Court then turned to the other assets that the sons claimed: a portion of the past annuity payments that Isaac and Sandra received, a portion of the IRA and a portion of the 96 AT&T shares. The sons again argued that ERISA only required the plan benefits to be distributed to the surviving spouse and that ERISA did not require the surviving spouse to retain the benefit once distributed. To put the sons' argument in context, the Court reviewed the design and purpose of ERISA. The Court first noted the purpose of ERISA was to protect the interests of participants and beneficiaries of private pension plans. The Court observed that ERISA confers beneficiary status on nonparticipant spouses or dependents only in rare situations. A nonparticipant spouse receives beneficiary status only by virtue of the qualified joint and survivor annuity provisions and the qualified domestic order provisions. The existence of these provisions, the majority reasoned, gives rise to a strong implication that other community property claims are inconsistent with ERISA's statutory scheme.
IRAs After Boggs
* ERISA preemption of IRAs. It is common knowledge that ERISA does not apply to IRAs--or is it? Perhaps the single most important unanswered question in Boggs is whether ERISA preempts state community property law for IRAs. The largest asset at issue in Boggs was an IRA.
In Boggs, Isaac established an IRA to hold a lump sum distribution made from a defined contribution plan after Dorothy died. The majority attempted to address this point by stating:
Both parties agree that the ERISA benefits at issue here were paid after Dorothy's death, and thus this case does not present the question whether ERISA would permit a nonparticipant spouse to obtain a devisable community property interest in benefits paid out during the existence of the community between the participant and that spouse.
Id. at 1762.
Because the Boggs decision does not address the effect of ERISA on qualified plan benefits paid out to the participant during the nonparticipant's lifetime, these benefits should retain their community property character. After Boggs, the rule under which lawyers should operate can be stated as follows. If benefits are paid from a qualified plan before the death of the nonparticipant spouse, then ERISA does not preempt the community property character of the distributed assets. If, on the other hand, benefits are paid from a qualified plan after the death of the nonparticipant spouse, then ERISA will continue to apply to the assets held in the IRA. Under these circumstances, it appears that ERISA pre- empts state property laws as to assets held in IRAs.
* Internal Revenue Code. Al-though the Code does not actually preempt state community property laws for IRAs, it does affect planning for these community property interests. Code § 408(g) provides that Code § 408, which governs IRAs, is "applied without regard to any community property laws." The impact of this provision is discussed below.
Other ERISA Assets After Boggs
The Ninth Circuit recently reminded lawyers that they should not assume that ERISA preempts all community property laws as they relate to employee benefit plans. In Emard, 153 F.3d 949, a Hughes Aircraft Company employee died owning an employer provided group life insurance policy. At the time of the employee's death, the beneficiary designation named the employee's former spouse as the sole beneficiary of the proceeds, and the divorce decree did not modify the beneficiary designation. The employee's new spouse claimed, among other things, that he should be entitled to at least his community property interest in the insurance proceeds. The former spouse claimed that the new spouse had no community property interest in the proceeds because ERISA preempts California community property law.
The Ninth Circuit held that ERISA did not preempt California community property law in this situation. In so holding, the court engaged in a detailed and thoughtful preemption analysis. The court acknowledged that the Supreme Court narrowed the scope of ERISA preemption in Boggs and that courts must now apply ordinary conflict preemption and field preemption analysis to determine whether ERISA preempts a state law. After analyzing the employee welfare plan provisions of ERISA, the court found that no conflict exists because there is "no indication that Congress intended to safeguard an individual beneficiary's rights to the proceeds of an ERISA insurance plan as against another person claiming superior rights, under state law, to those proceeds." Id. at 957. Likewise, the court found that there is no field preemption because "ERISA preempts [only those] state regulations that affect the administration of plans." Id. at 959. Because California community property laws "affect merely the ultimate ownership of distributed benefits," there is no field preemption. Id. The court distinguished Boggs and Ablamis because those cases involved employee pension plans that had joint and survivor annuity rules and participation rules that conflicted with community property laws. Because group life insurance is a welfare plan, not a pension plan, those conflicting ERISA provisions did not apply.
Creation and Management of IRAs
Because ERISA governs qualified plans, and because community property laws do not apply to assets held in qualified plans, the rest of this article focuses on IRAs. ERISA does not govern IRAs. As a result, state community property laws govern the creation, management and disposition of IRAs.
State Law Nature of IRA
IRAs exist at the juncture of state and federal law. Under Code § 408(a), an IRA must be a trust. Code § 408(h) allows an IRA to be a custodial account under certain circumstances. The trust or custodial account must have a written governing instrument. For a trust or custodial account to qualify as an IRA for federal tax purposes, the governing instrument of the trust or custodial account must contain certain language, and the trust or custodial account must be administered in accordance with the terms and conditions set forth in the governing instrument.
The IRS has issued two standard forms for IRAs. Form 5305 establishes an IRA in the form of a trust, and Form 5305-A establishes an IRA in the form of a custodial account. Ifa taxpayer uses either Form 5305 or 5305-A, then the taxpayer may rely on the instrument as constituting an IRA for purposes of Code § 408(a). If the taxpayer uses another form, the taxpayer may not automatically rely on the instrument as constituting an IRA. Rev. Rul. 87-50, 1987-2 C.B. 647.
Although the governing instrument of a trust or custodial account must contain certain language to qualify as an IRA under Code § 408(a), the inclusion of that language does not mean that federal law governs the trust or custodial account. On the contrary, state law, including community property law, governs all trusts and custodial accounts that qualify as IRAs. The qualification of these entities as IRAs affects only their taxation.
Power to Create an IRA
Under general community property principles, either spouse has the unilateral power to manage and control community property. This power does not, however, include the power to make a gift of community property or the power to sell certain kinds of community property without the other spouse's consent. A spouse's fiduciary duty to the other spouse tempers the unilateral ability to manage and control community property. Many states provide statutory remedies for a spouse's breach of his or her fiduciary duty to the other spouse for community property. See, e.g., Cal. Fam. Code § 1101.
The creation of an IRA involves establishing a trust or custodial account. To create either entity, the grantor must transfer property to an institution as trustee or custodian. Because the institution holds the transferred property in a fiduciary capacity for the grantor's benefit, that transfer would not constitute a gift of community property to a third party. Likewise, because the trust or custodial account must be held for the benefit of the grantor to qualify as an IRA for federal tax purposes, that transfer should not constitute a breach of
fiduciary duty by the grantor spouse.
This is particularly true for IRAs funded with rollovers from qualified plans. Because ERISA preempts community property laws--including, presumably, community property remedies for breach of fiduciary duty--the participant spouse should have no restrictions on his or her ability to fund an IRA with a rollover distribution from a qualified plan.
Power to Designate a Beneficiary
For a trust or custodial account to qualify as an IRA, the property of the trust or custodial account must be held for "the exclusive benefit of an individual or his beneficiaries." Code § 408(a). Because the federal income tax laws that govern IRAs apply without regard to community property laws, the term "his beneficiaries" would be interpreted to refer to the beneficiaries of the owner spouse. Accordingly, it appears that the governing instrument of an IRA need only allow the owner spouse to designate the beneficiary of the IRA. Once that provision is in the governing instrument, general trust principles would prohibit the trustee from allowing the nonowner spouse to designate a beneficiary, even if the nonowner spouse owns a community property interest in the trust property.
Management of an IRA
Once a spouse creates and funds an IRA in either trust or custodial form, the owner spouse and the nonowner spouse no longer own the property contributed to the trust or custodial account. Rather, they own a beneficial interest in the trust or custodial account. The rights conferred by that beneficial interest are set forth in the governing instrument. To the extent that the owner spouse reserves management rights to himself or herself, the nonowner spouse will not be able to exercise those rights.
* Qualified plans. One of the benefits of a qualified plan is that, for the most part, the law protects all assets held in the plan from creditors. The anti-alienation provisions of ERISA are enforceable against the participant's creditors, including a trustee in bankruptcy. See 11 U.S.C. § 541(c)(2); Patterson v. Shumate, 112 S. Ct. 2242 (1992). The protected assets include employee contributions as well as employer contributions. In re Rueter, 11 F.3d 850 (9th Cir. 1993). The law protects employee contributions even if the employee has complete access to the funds and may withdraw the funds at any time. In re Connor, 73 F.3d 258 (9th Cir. 1996). A qualified plan loses its protection only if the participant is also the owner or shareholder of the employer. In re Witwer, 148 B.R. 930 (Bankr. C.D. Cal. 1992).
* IRAs. Because the anti-alienation provisions of ERISA do not protect an IRA, state trust law governs creditors' rights to assets held in an IRA. Usually, an IRA trust is revocable by the settlor/owner. As a result, creditors generally have access to the assets held in the IRA trust. Even if the trust is not revocable, under the law of most states the settlor of a trust may not make the trust a spendthrift trust as to the grantor. Thus, grantor's creditors may have access to the IRA even if the IRA trust is irrevocable.
Nature of Liability
General community property principles determine whether community property held in an IRA can be reached to satisfy the debts of a spouse. Although state law varies widely in this regard, if the debt is a community debt, then generally all of the assets held in the community property IRA are liable to satisfy the debt. If, however, the debt is a separate debt, the creditor generally must first seek satisfaction from the debtor spouse's separate property. If that separate property is insufficient to satisfy the separate debt, then the creditor may reach the debtor spouse's one-half community property interest in the IRA.
The estate planning techniques for community property IRAs are similar to the estate planning techniques for IRAs generally. In most cases, each spouse will want to transfer his or her community property interest in an IRA to the surviving spouse. Only a small amount of estate planning is needed to effect that transfer. The estate planning will focus on matters, such as the minimum distribution rules, that are not affected by the community property nature of the IRA.
The estate planning becomes much more complicated when each spouse wants to transfer his or her community property interest to a trust or a third party. In those cases, the lawyer must be very careful to ensure that each spouse's community property interest is disposed of with minimum tax consequences.
The most common disposition of a community property interest in an IRA is an outright gift to the surviving spouse. The owner spouse can accomplish this by naming the nonowner spouse as sole beneficiary of the IRA. For the nonowner spouse, however, such a disposition is not quite so easy. As discussed above, only the owner spouse has the power to make a beneficiary designation. As a result, the only way in which a nonowner spouse may dispose of his or her community property interest in an IRA is by will. In states that allow that kind of disposition, the drafting lawyer should draft the nonowner spouse's will to leave his or her community property interest in the IRA to the owner spouse.
That clause is particularly important in a pour-over will. Without it, one could argue that the owner spouse's community property interest in an IRA should be transferred to the revocable living trust through the pour-over clause. Such a disposition could cause current income taxation of the distributed amount and could cause imposition of the 10 percent excise tax for premature distributions if the grantor spouse has not attained the age of 59 1/ 2. Code § 72(t)(1).
Disposition to Trusts
For a variety of reasons, a spouse may want to transfer his or her community property interest in an IRA to a trust at death. For instance, the owner of an IRA may want to defer estate taxes on the IRA assets by qualifying the disposition for the marital deduction while limiting the surviving spouse's ability to dispose of the trust wealth outside of family lines. In those instances, the deceased spouse may want to transfer his or her community property interest to a QTIP trust. Likewise, many clients hold the bulk of their assets in IRAs. For those clients, the marital deduction may be overfunded unless all or a part of the deceased spouse's community property interest in the IRAs is distributed to a credit shelter trust. In either case, counsel must structure the disposition in a manner that clearly segregates the interests of the spouses.
If the owner spouse is the first to die, then his or her community property interest in an IRA may be transferred to a trust by designating the trust as the beneficiary of the IRA. The owner spouse must, however, be careful not to transfer the nonowner spouse's community property interest to the trust. This is particularly important if a credit shelter trust is the intended beneficiary of the owner's interest. If both the nonowner spouse's interest and the owner spouse's interest are transferred to the credit shelter trust, then the assets of the trust remaining at the nonowner's death may be included in his or her gross estate under Code § 2036. The owner spouse can avoid this result by specifying in the beneficiary designation that only his or her community property interest is to be distributed to the credit shelter trust and that the nonowner spouse's community property interest will be transferred outright to the nonowner spouse. Alternatively, the owner spouse can name the trust as contingent beneficiary to give the surviving spouse the option to disclaim the deceased spouse's interest and cause that interest to pass to the trust. See, e.g., PLR 9439020.
With such a disposition, the nonowner spouse's interest in the IRA will not be included in the deceased owner spouse's gross estate, and the nonowner spouse can avoid current income taxation of the distribution if the nonowner spouse makes a qualified rollover. The taxation of the grantor spouse's interest depends on the type of trust to which it is distributed. For estate tax purposes, a distribution to a QTIP trust will qualify for the federal estate tax marital deduction, and a distribution to a credit shelter trust should be protected from estate tax by the owner spouse's unified credit. Unfortunately, such a distribution to a trust is not eligible for a qualified spousal rollover to avoid current income taxation. To minimize income taxation, the owner spouse should structure the trust so that it is a designated beneficiary for purposes of the minimum distribution rules under Code § 401(a)(9).
If the nonowner spouse is the first spouse to die, the planning becomes more complicated. In states that allow the nonowner spouse to dispose of his or her community property interest at death, the nonowner spouse could cause his or her community property interest to be distributed to a trust on his or her death. This type of distribution is typically accomplished through a provision in the nonowner spouse's will. As with the owner spouse, the nonowner spouse must be careful to dispose of only his or her community property interest.
Although the estate taxation of such a disposition is the same as the taxation of a transfer to a trust when the grantor spouse dies first, the income taxation is quite different. Because community property laws are disregarded for purposes of the income taxation of IRAs, any distri- bution of the nonowner spouse's community property interest from an IRA will be taxed as a distribution from the owner spouse's IRA. In other words, any distribution will be subject to current income tax, and the 10 percent penalty tax for premature withdrawals may apply if the grantor spouse is under the age of 59 1/ 2 when the distribution is made.
Exchange of Assets
An exchange of assets may be an attractive alternative to a disposition to a trust. This plan requires the nonowner spouse to exchange his or her interest in the IRA for other assets of equivalent value that the couple owns. For example, assume that Mr. and Mrs. Jones own a $1 million community property IRA held in Mr. Jones' name and $2 million of other community property assets. Mr. and Mrs. Jones could agree that the entire IRA will be Mr. Jones' separate property and that $500,000 of the Jones' other assets will be Mrs. Jones' separate property. After the exchange, Mr. Jones could dispose of the IRA in any manner he desires, and Mrs. Jones may dispose of her $500,000 of separate property in any manner she desires.
This exchange of property should be an income tax-free exchange. Under Code § 1041, transfers between spouses do not trigger gain or loss. This rule has been applied to the exchange of IRAs and other assets between spouses in accordance with a transmutation agreement--i.e., a property agreement changing the character of community property, separate property or both. See PLR 8929046.
Although such an exchange will not trigger gain or loss, the parties should consider other tax consequences of the exchange. In this example, Mr. and Mrs. Jones exchanged an equal amount of property. After the exchange, however, they will not have the power to dispose of an equal amount of property. The reason for this disparity is that Mr. Jones' separate property asset, the IRA, will be characterized as income in respect of the decedent on his death. As a result, his beneficiaries will be subject to income tax on the IRA distributions. Of course, if structured properly, the beneficiaries may be "designated" beneficiaries, allowing them to withdraw the balance of the IRA over their life expectancies. If that is the case, then the tax-free accumulation of the balance of the IRA may more than compensate the beneficiaries for the additional income tax burden.
Code § 1014(b)(6) also gives community property a substantial income tax benefit. On the death of one spouse, the community property interests of both spouses receive a new income tax basis equal to the fair market value as of date of death. As a result, in this example, if Mr. Jones had died without the property agreement, all of their non-IRA assets would have received a stepped-up income tax basis. As a result of the property agreement, however, Mrs. Jones' $500,000 of separate property will not receive a new income tax basis.
There are two theories of community property. The "item theory" is premised on the notion that each spouse owns an undivided interest in each asset of the community. The "aggregate theory" is based on the idea that each spouse owns an undivided interest in the community as a whole, so that a non-pro rata division of community property can be made.
Most states follow the item theory of community property on the death of a spouse. Under that theory, each spouse owns an undivided one-half interest in IRAs held in the name of either spouse. It may be possible in some states, however, to contract out of the item theory into the aggregate theory. By doing so, the spouses can retain the community property character of an IRA while enjoying the advantages of an exchange of property. If state law allows the adoption of the aggregate theory of community property for death, then the spouses could adopt the aggregate theory by signing a property agreement that allows non-pro rata distributions of community property on death. See D. Keith Bilter, Estate
Planning for Community Property Qualified Retirement Plan Benefits , 1993 UCLA-CEB Est. Plan. 685. A non-pro rata division of community property can be a taxable event under some circumstances. In Edwards v. Commissioner, 22 T.C. 65 (1954), the Tax Court held that such a non-pro rata division is a taxable event where the wife received a promissory note from her husband as her portion of the community property. In that case, the division was similar to a sale of the wife's community property interest.
In circumstances in which the non-pro rata division is not similar to a sale, the Tax Court has held that such a division of community property is not a taxable event. Wren v. Commissioner, T.C. Memo. 1965-52. Accordingly, where each spouse receives a share of commu-nity property in kind as part of the division, the division should not be a taxable event. PLR 8037124
To ensure that the adoption of the aggregate theory is not a taxable event, the agreement should provide that each spouse will receive his or her share of community property in kind and not as a cash payment. Of course, because no authority has directly addressed the tax consequences of adopting the aggregate theory, lawyers should consider obtaining a private letter ruling before structuring such a plan.
This article has discussed some of the tools available to estate planning lawyers when planning for community property held in an IRA. As lawyers confront the problems faced when clients wish to dispose of their community property interests in IRAs to beneficiaries other than the surviving spouse, the law in this area will develop and the catalog of planning tools will expand. Until that time, lawyers must be creative when structuring these plans, and they must be careful to comply with the various federal and state laws that apply to community property IRAs.
S. Andrew Pharies is an associate with Procopio, Cory, Hargreaves & Savitch, LLP in San Diego, California, and is Chair of the Probate Division's Estate Planning Issues for Owners of Marital and Community Property (B-5) Committee.