The IRS recently issued a Private Letter Ruling continuing a trend of liberalizing rollover rules for IRAs. In this case, the decedent (husband) owned multiple IRAs and designated his own estate as beneficiary. Later he married wife, but he did not change his IRA beneficiary designations before his death. This typically creates problems for the surviving spouse, who generally could otherwise rollover the decedent’s IRAs into his or her own IRAs without suffering penalties. When the estate is the designated beneficiary, the surviving spouse is generally not allowed to rollover the IRA assets.

In this case, the surviving spouse (wife) intended to exercise her right of election directly against her husband’s IRAs and then rollover the IRA assets into her own IRAs. The IRS ruled that "where a spouse exercises a right of election, to the extent that the elective share contains IRA assets, the IRA assets will be treated as having been received by the surviving spouse directly from the decedent and not from the estate.

This is a significant ruling. Had the IRS ruled that wife must exercise her right of election against husband’s estate to obtain his IRAs, she would not have been able to rollover those assets into her own IRA.