Did you know conduit trusts and accumulation trusts are collectively known as “see through” trusts. They are special types of trusts. Through these trusts the IRS may look through the trust agreement to a “designated beneficiary” in order to determine whether the IRA benefits can be paid out over a period longer than five years or the life expectancy of the deceased plan participant. In the latter instance, this may be able to be done if the plan participant died after his or her required beginning date. 

The new SECURE Act, which you may have learned about in our previous blogs, retains this default rule. This rule provides that the assets of any IRA that is paid to a non-individual or to a trust, that does not qualify as see-through trust, must be distributed within five years of December 31st of the calendar year of the plan participant’s death, or the life expectancy of the deceased plan participant if he or she died after his or her required beginning date.

Qualifying as “see-through” trust is not always easy. It also not something you should undertake without working with an experienced estate planning attorney. Let us provide a bit more information here on our blog. For example, in order to qualify as a  “see-through” trust, the trust must be a conduit trust or an accumulation trust, meeting the following requirements:

  • The trust must be an irrevocable trust, at least on the day of the plan participant’s death, and must be valid under applicable state law.
  • All beneficiaries of the trust are individuals and identifiable by the designation date. This is September 30th of the calendar year following the plan participant’s death. It is acceptable for the trust to have only one beneficiary.
  • Information regarding the trust must be provided to the plan administrator by October 31st of the calendar year following the plan participant’s death.
  • None of the trust assets can be available or used to pay creditors of the trust or the estate of the deceased Plan Participant after September 30 of the calendar year of the plan participant’s death.

In a conduit trust the trustee must immediately distributed to the beneficiary all available income and principal, even if the beneficiary has creditors. By contrast, an accumulation trust provides that the trustee can accumulate benefits for the beneficiaries, so long as the trust meets certain requirements.

We know this article may raise more questions than it answers. Know that trust planning can help you reach your goals for yourself, your loved ones, your business, and your legacy. We encourage you not to wait to schedule a meeting to ask your questions with a member of our experienced legal team.