Who Owns IRA Distributions to a By-Pass Trust?
The language of a by-pass trust frequently provides that the surviving spouse is to receive all the income from the trust and as much of the principal as he or she needs. The remainder beneficiaries receive whatever is left over at the second death. There is therefore a tension between the rights of the surviving spouse and those of the remainder beneficiaries. One of the purposes [28] of the by-pass trust is to shelter the decedent s assets from further estate taxation. The trustee of the by-pass trust has a fiduciary duty to see to it that there are no unnecessary distributions to the surviving spouse since unnecessary distributions put the money back into the estate tax queue and change the ultimate beneficiaries when the deceased and surviving spouses have different heirs. The trustee chooses investments in light of his or her responsibility to both the surviving spouse and to the remaindermen. It is not appropriate for trust investments to generate more income than is needed by th
