Can Nested See Trhough Trusts still qualify as designated beneficiary?
Parents have revocable trust that names their children’s revocable trusts (which parents created) as beneficiary. The IRA names parent’s trust as contingent beneficiary after surviving spouse. Children’s trusts qualify as “see through” trusts. So, does the Parent’s trust also qualify as “see through” trust since the beneficiary (if spouse has predeceased) is a “see through” trust?
Many thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2025-07-10 12:57
All the trusts must become irrevocable upon parent’s death to qualify for look through, as well as the other look through requirements. And because only the parent’s (funding trust) is named as the IRA beneficiary, all the trusts must be tested for look through purposes as a single combined trust.
If separate trusts for each child are specified in parent’s trust (ie. the funding trust), which is to split upon their death into sub trusts, the separate account rules can apply to each child’s trust per the Secure Act Regs, but this only means that the LE of the respective child can be used for years 1-9 of the 10 year rule. This is really of limited advantage because for tax purposes the child would probably be better served to equalize the distributions over the 10 or 11 years rather than having a large taxable distribution in year 10 due to limiting distributions to just the RMD. Also, note that if there is any discretion regarding the amount allocated to each child’s trust, the separate account rules would not be available. Also, note that for the sub trusts to qualify as separate accounts, the funding trust must be terminated and divided quite soon after parent’s death.
I assume that none of the children are disabled or chronically ill, as the 10 year rule would then not apply as long as the trust was qualified.
Permalink Submitted by P. Scott Buhlinger on Thu, 2025-07-10 16:42
Thank you. No disabled beneficiaries that would make them EDB. My issue for clients is to make sure they understand that the children’s trust must ALSO be irrevocable. I assume they have until September 30 of the year following the death of the IRA owner to ensure that element (best if trusts start irrevocable or become so on the death of the surviving parent). The trusts we draft all require that any IRA be allocated into any subtrusts as of the death of the IRA owner to ensure separate share treatment under the final regulations–there is no chance IRA assets will get used for any trust administration expenses.
Permalink Submitted by Alan - IRA critic on Thu, 2025-07-10 22:31
For look through (and for potential separate account qualification) the trust must become irrevocable on the date of death or before. The 9/30 beneficiary determination date may affect which trust beneficiaries are “countable” but does not serve as a date to meet look through requirements.
Permalink Submitted by P. Scott Buhlinger on Fri, 2025-07-11 17:37
Thanks. I am getting some push back on that DOD versus 9/30 of the year following death. Could you give me a cite? Appreciate all you do to keep us from malpractice.
Permalink Submitted by Alan - IRA critic on Sat, 2025-07-12 12:15
IRS Reg 1.401(a)(9)-4(f)(2)(ii) – Trust requirements.
States “The trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee”.
Perhaps confusion exists with respect to actions occurring prior to 9/30 that affect who is a countable beneficiary as of 9/30. The Regs indicate that beneficiaries of the trust who disclaimed within 9 months, pre deceased the employee, fully collected their interest under the plan, were added with an allowed power of appointment or removed due to decanting or court order are not countable. As such the term irrevocable does not mean that beneficiary changes cannot occur post death and by 9/30, just that the terms of the trust itself cannot be changed.