IRA and Roth inheritance question

[bwarbur]

We're Canadians living in the US. We both have green cards. I have an IRA and a Roth and my wife is the primary beneficiary for both, with my children as secondary beneficiaries. I’m transferring small amounts annually from the IRA to the Roth as tax efficiently as I can (up to 15% bracket limit, when effective rate beomes 30% due to dividends then becoming taxed at 15%). I pay the tax from non-IRA funds. These transfers will probably become uneconomic when I reach 70.5 (6 years time) and have to take RMD’s.
We have 2 children who have decided to live in Canada. They both had green cards and have surrendered them. They will hopefully eventually inherit the 2 accounts.
We’re researching the most efficient method of our kids receiving whatever funds remain after we both die. My wife may need some income from the IRA in the event she survives me for a lengthy period and requires nursing home care etc.

I think the most tax efficient method would be to:

(i) Have the IRA left to the estate of the surviving spouse.
(ii) The estate would collapse the IRA and remit funds to our children. Would there be a 15% withholding tax to be retained by the IRS, or would the value of the IRA be included in the income of the surviving spouse in the year of death?
(iii) Have the surviving spouse make the 2 children the beneficiaries of the Roth
(iv) Roth withdrawals by the children would be tax free in both the US and Canada. I think they can be spread out based on their life expectancy. I don’t think there would be any US or Canadian tax on these withdrawals.
Thanks for any advice.
I thought I was financially literate until I started researching this issue!