Analysis of January 17, 2001 Proposed Regulations Governing Required Minimum Distributions From IRAs and Qualified Retirement Plans

by Steven B. Gorin¹

On January 17, 2001, the Internal Revenue Service simplified and improved upon its proposed regulations governing required minimum distributions (RMDs) from IRAs and other retirement plans. This article focuses on making beneficiary designations under the rules governing RMDs that apply to defined contribution² qualified retirement plans³ and IRAs⁴ (either referred to as a "plan" in this article). Drafting trusts within this framework includes deciding whether to make powers of appointment more limited than one's current practice and whether lifetime trusts should mandate distributions to the beneficiaries of any distributions from plans.

These new regulations⁵ (the "proposed regs") are proposed to apply to RMDs for calendar years beginning on or after January 1, 2002. However, taxpayers may rely on either the new or the old proposed regulations for RMDs for calendar year 2001. Qualified plans are not required to be amended during 2001, so participants in such plans cannot assume that the new rules apply to them yet. One of the wrinkles for IRAs is a new requirement that the trustee of an IRA must report the RMD to the owner and the IRS,⁶ although the RMD may still be taken out of any combination of IRAs.⁷

RMDs While Owner⁸ Is Living

After the owner attains the required beginning date,⁹ the owner uses one of two tables to determine RMDs. In both tables, the owner's life expectancy is recalculated.¹⁰ However, unlike the prior regulations, recalculation does not affect distributions after the owner dies (discussed later below).¹¹

The general rule for distributions during the owner's life is to divide the owner's plan assets by the expected return multiples set forth in the appendix. The IRS may replace this table by revenue rulings, notices or other guidance in the Internal Revenue Bulletin.¹² This table annually recalculates the joint life expectancy of the owner and a hypothetical beneficiary who is 10 years younger than the owner.¹³ By adopting this rule, the proposed regs are generously giving taxpayers the ability to take the slowest payout that the IRS could possibly allow.¹⁴ This rule applies without regard to any beneficiary designation.¹⁵ Among those who especially benefit from these rules are owners whose spouses are close in age to the owners or who prefer to name charities as their beneficiaries.

If the owner's spouse is the sole designated beneficiary of the owner's entire interest at all times during the distribution calendar year, then RMDs are taken over the longer of the period provided under the general rule or the annually recalculated joint life expectancy of the owner and the owner's spouse using their respective attained ages as of their birthdays in the distribution calendar year.¹⁶ Since the general rule assumes the beneficiary is 10 years younger than the owner, this rule can be applied as follows:

• If the spouse's birthday occurred in a year that is more than 10 calendar years before the calendar year in which the owner was born, use the spouse's life expectancy.

• Otherwise, the general rule will apply.

If a trust is the beneficiary, whether the spouse is considered the sole designated beneficiary depends on whether the trust is what some commentators referred to as a "conduit trust" when describing the prior proposed regulations. If, upon receipt, the trustee distributes to the surviving spouse all amounts distributed from a plan to the trust, then the spouse is the sole designated beneficiary.¹⁹ Otherwise, it is possible that amounts distributed from a plan to the trust will be held for the remainder beneficiaries rather than for the surviving spouse, and the spouse is not the sole designated beneficiary.²⁰

RMDs After Owner's Death

Before discussing these rules, it is important to realize to which plans these rules apply. IRA sponsors typically will want to adopt the rules that allow the slowest payouts, since they want to keep managing the money after the owner's death. Employers, on the other hand, typically do not want the responsibility of administering a plan after an employee's death, and require immediate distribution to the extent they can. If stretching out distributions is important, and it usually is, rolling over from a qualified retirement plan to an IRA is necessary to maximize flexibility. Caution: There may be significant disadvantages to rolling over accounts that were in existence when the Tax Reform Act of 1986 was enacted, including loss of lump sum distribution treatment and loss of a TEFRA election, both of which are beyond the scope of this article.

The following rules apply if the owner dies before the required beginning date, which for IRAs is April1 of the calendar year following the calendar year in which the owner attains age 70½. If the owner does not have a designated beneficiary, the entire plan must be distributed by the end of the calendar year that contains the fifth anniversary of the date of the owner's death.²¹ If the owner has a designated beneficiary, then distributions must begin as follows:

• If the sole designated beneficiary is the owner's surviving spouse, then distributions must begin no later than the later of (a)the end of the calendar year immediately following the calendar year in which the owner died, or (b)the end of the calendar year in which the owner would have attained age 70½.²² Whether the spouse is considered the sole designated beneficiary is described earlier in this article.²³

• Otherwise, distributions must begin no later than "the end of the calendar year immediately following the calendar year in which the [owner] died."²⁴

• If the owner does not have a designated beneficiary, then over the owner's life expectancy using the owner's age as of the owner's birthday in the calendar year of the owner's death.²⁶

• If the owner has a designated beneficiary, then over the designated beneficiary's remaining life expectancy.²⁷

• If the owner's life expectancy is used, it is not recalculated; instead, the owner's life expectancy is reduced by one for each calendar year that has elapsed since the date of the owner's death.²⁸

• If the owner's surviving spouse is the sole beneficiary,²⁹ the surviving spouse's life expectancy is recalculated during the surviving spouse's life. "For calendar years after the calendar year of the spouse's death," the spouse's life expectancy is determined using the spouse's age as of the spouse's "birthday in the calendar year of the spouse's death," and the spouse's life expectancy "is reduced by one for each calendar year that has elapsed since the [date] of the spouse's death."³⁰

• If any other person's life expectancy is used, it is not recalculated; instead, that person's life expectancy is determined using that person's age as of that person's birthday in the calendar year of the owner's death, and that person's life expectancy is reduced by one for each calendar year that has elapsed since the date of the owner's death.³¹

These proposed regulations provide that, generally, the designated beneficiary is determined as of the end of the year following the year of the employee's death rather than as of the employee's required beginning date or date of death, as under the 1987 proposed regulations. Thus, any beneficiary eliminated by distribution of the benefit or through disclaimer (or otherwise) during the period between the employee's death and the end of the year following the year of death is disregarded in determining the employee's designated beneficiary for purposes of calculating required minimum distributions. If, as of the end of the year following the year of the employee's death, the employee has more than one designated beneficiary and the account or benefit has not been divided into separate accounts or shares for each beneficiary, the beneficiary with the shortest life expectancy is the designated beneficiary, consistent with the approach in the 1987 proposed regulations.³³

However, it would be helpful if such cures were expressly authorized under the beneficiary designation or under the plan.

If more than one person is a designated beneficiary, the beneficiary with the shortest life expectancy is the measuring life.³⁴ However, the beneficiaries of separate accounts are considered separately.³⁵ A separate account in an individual account is a portion determined by an acceptable separate accounting, including allocating investment gains and losses on a pro rata basis in a reasonable and consistent matter between such portion and the owner's other benefits.³⁶ Unlike the prior proposed regulations, the proposed regs do not expressly require that the beneficiary designation or the plan provide for separate accounts. However, the fact that an owner's interest under a plan passes to a certain individual under state law does not make that individual a designated beneficiary unless the individual is designated as a beneficiary under the plan.³⁷ This disregard for the facts of state law in determining beneficiary designations may also signal a disregard for a separate accounting unless the plan or beneficiary designation provides for separate accounts. A change in the beneficiary that occurs before the beneficiary designation deadline will be respected notwithstanding this seeming disregard for state law.^37a Nevertheless, it would be prudent for a beneficiary designation to provide that each beneficiary's share shall be accounted for separately or held in a separate account.

Consistent with the prior proposed regulations, the owner's estate does not qualify as a designated beneficiary.³⁸ If the owner's estate administration is concluded by the beneficiary designation deadline (described earlier as December 31 of the year following the year of the owner's death), then might the estate's beneficiaries be considered to be the designated beneficiaries? As described above, for this result to occur the beneficiaries of the owner's estate would need to be considered to be designated as beneficiaries under the plan. If the plan specifically addresses and favorably resolves this issue, the beneficiaries of the owner's estate should be considered to be designated as beneficiaries. The bottom line is that a designated beneficiary is an individual who is designated as a beneficiary under the plan whether or not the owner made the designation under the plan,³⁹ so creative drafting of a plan could resolve the various issues involved in beneficiary designations.

Drafting Trusts Under These Rules

As under prior rules, a trust is not a designated beneficiary, but its beneficiaries may be.⁴⁰ For a trust's beneficiaries to be designated beneficiaries, all four of the following requirements must be met:⁴¹

• The trust is valid under state law, or would be but for the fact that there is no corpus.

• The trust is irrevocable or will, by its terms, become irrevocable upon the owner's death.

• The trust's beneficiaries who have an interest in the plan are identifiable from the trust instrument (discussed below).

• Documentation is provided to the plan administrator.⁴²

The members of a class of beneficiaries capable of expansion or contraction will be treated as being identifiable if it is possible, as of the date the beneficiary is being determined, to identify the class member with the shortest life expectancy.⁴⁴ If the trust is a conduit trust, with all plan benefits received by the trust being distributed immediately to one beneficiary, then the other beneficiaries are disregarded.⁴⁵ Otherwise, below are some guidelines for trusts:

• If the trustee has the power to sprinkle among beneficiaries, then the beneficiary with the shortest life expectancy must be identifiable. Among the primary beneficiary and the primary beneficiary's descendants, hopefully the IRS will accept the proposition that a parent must be older than her child (although presumably the IRS could try to concoct a situation in which the parent adopts a person who is older than the adopting parent). However, it is very possible that the primary beneficiary's spouse may be older than the primary beneficiary. Thus, it may be prudent for the trust agreement not to authorize distributions to the primary beneficiary's spouse, although the trust agreement simply could preclude distributions to a primary beneficiary's spouse who is older than the primary beneficiary. If it is desirable to name the primary beneficiary's spouse as a beneficiary of a sprinkle trust, then it may be advisable for the trust to require separate accounting for any retirement plan benefits and provide that those benefits will not be available for distribution to the primary beneficiary's spouse.

• If the primary beneficiary holds an inter vivos power of appointment, the class in favor of whom the power of appointment could be exercised should be limited to individuals who are not older than the primary beneficiary.

• The same principles apply if the primary beneficiary holds a testamentary power of appointment.

• Query: If a trust is modified or a beneficiary irrevocably renounces powers of appointment to the extent they are excessive compared with the above suggestions, will that modification or renunciation be respected? Yes, so long as the beneficiary designation under the plan authorizes that modification or renunciation.⁴⁶ Presumably, if a trust is named in a beneficiary designation under the plan, any modifications to the trust should be considered to be authorized under the trust. However, caution is advised, as the proposed regs do not specifically address this issue, and recent materials from an ACTEC meeting describe at least one qualified plan that does not recognize disclaimers.⁴⁷

• Conduit trusts become more appealing, since the surviving spouse is the only beneficiary during the surviving spouse's life. They also permit the surviving spouse's life expectancy to be recalculated annually. Also, if the decedent did not survive the required beginning date, RMDs may be delayed until the end of the calendar year in which the decedent would have attained age 70½, although the marital deduction rules may require the account's internal income to be distributed. Finally, marital trusts require all income to be distributed to the surviving spouse no less frequently than annually, and the IRS' safe harbor for a marital trust requires the surviving spouse to have the option of requiring the trustee to withdraw the IRA's current income.⁴⁸ These considerations are unique to trusts for the surviving spouse.

• From an income tax deferral perspective, outright distributions are better than bequests to marital trusts. With outright distributions, the surviving spouse can roll over the account and take distributions using the table set forth in the appendix. Thus, bequests to a marital trust usually are motivated by one or both of the following reasons: The owner does not trust the surviving spouse to manage the account properly, or the owner wants to preserve the account for the remaindermen (e.g., a second marriage). If the former is the sole reason, a conduit trust may very well be desirable, because it minimizes RMDs and allows the trustee to manage the assets and pay them out over the surviving spouse's recalculated life expectancy. If the latter is the sole reason, a conduit trust could defeat the goals of preserving the assets for the remaindermen unless the surviving spouse dies before the RMDs significantly exceed the account's internal income.⁴⁸

Conclusion

The proposed regs greatly simplify rules governing distributions during a retirement plan owner's life. Many taxpayers will be able to take smaller annual distributions than under the prior proposed regulations. However, to a large extent, the complexities of using trusts as beneficiaries under the prior proposed regulations and various letter rulings remain, although it is a little comforting to see the principles of the letter rulings integrated into the proposed regs. I hope that the process of making comments to the IRS will allow any uncertainties governing beneficiary designations to be resolved when the proposed regs are finalized.

Owner's Age	Distribution Period
70	26.2
71	25.3
72	24.4
73	23.5
74	22.7
75	21.8
76	20.9
77	20.1
78	19.2
79	18.4
80	17.6
81	16.8
82	16.0
83	15.3
84	14.5
85	13.8
86	13.1
87	12.4
88	11.8
89	11.1
90	10.5
91	9.9
92	9.4
93	8.8
94	8.3
95	7.8
96	7.3
97	6.9
98	6.5
99	6.1
100	5.7
101	5.3
102	5.0
103	4.7
104	4.4
105	4.1
106	3.8
107	3.6
108	3.3
109	3.1
110	2.8
111	2.6
112	2.4
113	2.2
114	2.0
115 and older	1.8

Endnotes

¹ Steven B. Gorin is a partner in the estate planning practice area of Thompson Coburn LLP. He received his J.D. in 1986 from Washington University in St. Louis. Before practicing law, Gorin had eight years of experience as a certified public accountant, including individual and business income tax planning and tax return preparation and personal financial planning. He combines this with trust and estate law to help clients plan for and manage their retirement. Gorin has experience with tax planning for IRA and retirement plan distributions. This article does not necessarily represent the views of Thompson Coburn LLP.

² Examples of defined contribution plans include 401(k) and other profit-sharing plans and money purchase pension plans (including target benefit plans).

³ 26 I.R.C. § 401(a)(9) (1986).

⁴ 26 I.R.C. §§408(a)(6) and 408(b)(3) (West Supp. 2000) apply rules similar to 26 I.R.C. §401(a)(9) (West Supp. 2000) to individual retirement accounts and individual retirement annuities. Prop. Treas. Reg. §1.408-8(A-1), 66 Fed. Reg. 3950 (Jan. 17, 2001).

⁵ Reg-130477-00, Reg-130481-00.

⁶ Prop. Treas. Reg. §1.408-8(A-10), 66 Fed. Reg. 3952 (Jan. 17, 2001).

⁷ Prop. Treas. Reg. §1.408-8(A-9), 66 Fed. Reg. 3951 (Jan. 17, 2001).

⁸ Any references in this article to "owner" mean the owner of an IRA or a participant in a qualified retirement plan.

⁹ Generally, the required beginning date ("RBD") is "April 1 of the calendar year following the calendar year in which the [owner] attains age 70½." I.R.C. §401(a)(9)(C)(i)(I) (West Supp. 2000); Prop. Reg. §1.408-8(A-3), 66 Fed. Reg. 3950 (Jan. 17, 2001). However, in the case of a qualified retirement plan (but not an IRA), if the employee is not a 5% owner of the employer, then the RBD is April 1 of the calendar year following the calendar year in which the owner retires. 26 I.R.C. §401(a)(9)(C)(i)(II) (West Supp. 2000), as limited by 26 I.R.C. §401(a)(9)(C)(ii) (West Supp. 2000). For a determination of when an owner attains age 70 ½, see Prop. Treas. Reg. § 1.401(a)(9)-2(A-3), 66 Fed. Reg. 3936 (Jan. 17, 2001).

¹⁰ Prop. Treas. Reg. § 1.401(a)(9)-5(A-4), 66 Fed. Reg. 3940 (Jan. 17, 2001).

¹¹ Prop. Treas. Reg. § 1.401(a)(9)-5(A-5), 66 Fed. Reg. 3940 (Jan. 17, 2001).

¹² Prop. Treas. Reg. §1.401(a)(9)-5(A-4)(a)(2)(ii), 66 Fed. Reg. 3940 (Jan. 17, 2001), Prop. Treas. Reg. § 1.401(a)(9)-5(A-6)(b), 66 Fed. Reg. 3941 (Jan. 17, 2001).

¹³ See "The uniform distribution period" section of the Preamble to the Proposed Regs., 66 Fed. Reg. 3930 (Jan. 17, 2001).

¹⁴ 26 I.R.C. §401(a)(9)(G) applies the incidental death benefit requirements, which generally preclude the use of the life expectancy of a non-spouse beneficiary who is more than 10 years younger than the owner.

¹⁵ The first sentence of the "Determination of the Designated Beneficiary" section of the preamble to the proposed regs. provides:

These proposed regulations provide that, generally, the designated beneficiary is determined as of the end of the year following the year of the employee's death rather than as of the employee's required beginning date or date of death, as under the 1987 proposed regulations. 66 Fed. Reg. 3931 (Jan. 17, 2001).

Note that Prop. Treas. Reg. § 1.401(a)(9)-5(A-4), 66 Fed. Reg. 3940 (Jan. 17, 2001) omits any reference to a designated beneficiary under the general rule. Generally, the designated beneficiary is based on the beneficiaries designated as of the last day of the calendar year following the calendar year of the owner's death. Prop. Treas. Reg. § 1.401(a)(9)-4(A-4(a), 66 Fed. Reg. 3938 (Jan. 17, 2001)). This deadline for determining the designated beneficiary is consistent with the deadline for beginning distributions after death. Prop. Treas. Reg. §1.401(a)(9)-3(A-3), 66 Fed. Reg. 3936 (Jan. 17, 2001), under the authority of 26 I.R.C. §401(a)(9)(B)(iii)(III) (West Supp. 2000), which requires distributions payable over the life of a beneficiary to start no later than one year after the date of the [owner's] death or such later date" as the IRS determines.

¹⁶ Prop. Treas. Reg. § 1.401(a)(9)-5(A-4)(b), 66 Fed. Reg. 3940 (Jan. 17, 2001).

¹⁷ Prop. Treas. Reg. § 1.401(a)(9)-5(A-6)(a) calls for "using . . . the expected return multiples in Tables V and VI of §1.72-9."

¹⁸ Prop. Treas. Reg. § 1.401(a)(9)-5(A-6)(b), 66 Fed. Reg. 3941 (Jan. 17, 2001).

¹⁹ Prop. Treas. Reg. § 1.401(a)(9)-5(A-7)(c)(3), Example 3, 66 Fed. Reg. 3942 (Jan. 17, 2001).

²⁰ Prop. Treas. Reg. § 1.401(a)(9)-5(A-7)(c)(3), Example 2(iii), 66 Fed. Reg. 3942 (Jan. 17, 2001).

²¹ Prop. Treas. Reg. §1.401(a)(9)-3(A-2), 66 Fed. Reg. 3937 (Jan. 17, 2001), promulgated under 26 I.R.C. §401(a)(9)(B)(ii) (West Supp. 2000).

²² Prop. Treas. Reg. §1.401(a)(9)-3(A-3)(b), 66 Fed. Reg. 3937 (Jan. 17, 2001), promulgated under 22 I.R.C. §401(a)(9)(B)(iii)-(iv) (West Supp. 2000).

²³ See text accompanying footnotes 16 and 17.

²⁴ Prop. Treas. Reg. §1.401(a)(9)-3(A-3), 66 Fed. Reg. 3937 (Jan. 17, 2001), under the authority of 26 I.R.C. §401(a)(9)(B)(iii)(III) (West Supp. 2000), which requires distributions payable over the life of a beneficiary to start no "later than one year after the date of the [owner's] death or such later date" as the IRS determines.

²⁵ Prop. Treas. Reg. §1.401(a)(9)-2(A-5), 66 Fed. Reg. 3936 (Jan. 17, 2001) and Prop. Treas. Reg. § 1.401(a)(9)-5(A-5), 66 Fed. Reg. 3940 (Jan. 17, 2001), both under I.R.C. § 401(a)(9)(B)(i) (West Supp. 2000).

²⁶ Prop. Treas. Reg. §1.401(a)(9)- 5(A-5)(a)(2) and (c)(3), 66 Fed. Reg. 3941 (Jan. 17, 2001).

²⁷ Prop. Treas. Reg. §1.401(a)(9)- 5(A-5)(a)(1), 66 Fed. Reg. 3941 (Jan. 17, 2001).

²⁸ Prop. Treas. Reg. §1.401(a)(9)- 5(A-5)(c)(3), 66 Fed. Reg. 3941 (Jan. 17, 2001).

²⁹ The proposed regulation uses "sole beneficiary" instead of "sole designated beneficiary," but the terms seem to be used interchangeably. See text accompanying footnotes 16 and 17 for determining whether the surviving spouse is the sole beneficiary.

³⁰ Prop. Treas. Reg. §1.401(a)(9)- 5(A-5)(c)(2), 66 Fed. Reg. 3941 (Jan. 17, 2001).

³¹ Prop. Treas. Reg. §1.401(a)(9)- 5(A-5)(c)(1), 66 Fed. Reg. 3941 (Jan. 17, 2001).

³² Prop. Treas. Reg. § 1.401(a)(9)-4(A-4)(a), 66 Fed. Reg. 3938 (Jan. 17, 2001).

³³ See portion of the preamble entitled "Determination of the designated beneficiary." See also Prop. Treas. Reg. § 1.401(a)(9)-4(A-4)(a).

³⁴ Prop. Treas. Reg. §1.401(a)(9)- 5(A-7)(a)(1), 66 Fed. Reg. 3941 (Jan. 17, 2001).

³⁵ Prop. Treas. Reg. §1.401(a)(9)- 5(A-7)(a)(2), 66 Fed. Reg. 3941 (Jan. 17, 2001).

³⁶ Prop. Treas. Reg. §1.401(a)(9)- 8(A-3)(a), 66 Fed. Reg. 3947 (Jan. 17, 2001).

³⁷ Prop. Treas. Reg. § 1.401(a)(9)-4(A-1), 66 Fed. Reg. 3937 (Jan. 17, 2001).

^37a Prop. Treas. Reg. § 1.401(a)(9)-4(A-4)(a), 66 Fed. Reg. 3938 (Jan. 17, 2001).

³⁸ Prop. Treas. Reg. §1.401(a)(9)-4(A-3)(a), 66 Fed. Reg. 3938 (Jan. 17, 2001).

³⁹ Prop. Treas. Reg. §1.401(a)(9)-4(A-2), 66 Fed. Reg. 3938 (Jan. 17, 2001).

⁴⁰ Prop. Treas. Reg. §1.401(a)(9)-4(A-5)(a), 66 Fed. Reg. 3938 (Jan. 17, 2001).

⁴¹ Prop. Treas. Reg. §1.401(a)(9)-4(A-5)(b), 66 Fed. Reg. 3938 (Jan. 17, 2001).

⁴² Prop. Treas. Reg. §1.401(a)(9)-4(A-6), 66 Fed. Reg. 3938 (Jan. 17, 2001), provides details on providing documentation.

⁴³ Prop. Treas. Reg. §1.408-8(A-1)(b), 66 Fed. Reg. 3950 (Jan. 17, 2001).

⁴⁴ Prop. Treas. Reg. §1.401(a)(9)-4(A-1), 66 Fed. Reg. 3937 (Jan. 17, 2001).

⁴⁵ The identifiable requirement applies only to those "who are beneficiaries with respect to the trust's interest" in the owner's benefits. Prop. Treas. Reg. §1.401(a)(9)-4(A-5)(b)(3), 66 Fed. Reg. 3938 (Jan. 17, 2001). Prop. Treas. Reg. § 1.401(a)(9)-5(A-7)(c)(3), 66 Fed. Reg. 3942 (Jan. 17, 2001), Example 3, illustrates this interpretation of the conduit rule.

⁴⁶ This is derived from the provisions of Prop. Treas. Reg. §1.401(a)(9)-4(A-1), 66 Fed. Reg. 3937 (Jan. 17, 2001) that require that the beneficiary be identifiable "under the plan" and that an individual must be "designated as a beneficiary under the plan."

⁴⁷ In Egelhoff v. Egelhoff, 148 L.Ed. 271 (2001), the U.S. Supreme Court held:

A Washington statute provides that the designation of a spouse as the beneficiary of a nonprobate asset is revoked automatically upon divorce. We are asked to decide whether the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 832, 29 U.S.C. §§ 1001, et seq., pre-empts that statute to the extent it applies to ERISA plans. We hold that it does.

This reinforces the position the IRS took in the proposed regulations on required minimum distributions, that the state law effects on a beneficiary designation will be ignored except to the extent recognized by the retirement plan. One hopes that when we name a revocable trust as the beneficiary of a retirement plan, any state law effects on that trust would be respected. However, this decision clearly states that ERISA's policy is to relieve plan administrators from the burden of researching the law in the various states, so it would be prudent to have disclaimers, etc. expressly provided for in the trust or in the beneficiary designation.

⁴⁸ Rev. Rul. 2000-2, Mertens Rulings Volume (West 1997). What happens if the surviving spouse does not require the trustee to withdraw the plan's income from the plan – does that constitute a gift by the surviving spouse to the remaindermen? A solution may be to provide that, if the surviving spouse does not demand the distribution, then the trustee is required to distribute an amount equal to the plan's income but may choose to withdraw this amount from the plan or to use trust principal to satisfy this distribution.

⁴⁹ Prop. Treas. Reg. § 1.401(a)(9)-5(A-4)(2), 66 Fed. Reg. 3940 (Jan. 17, 2001).