Qualification as a see-through accumulation trust when grandchildren trusts are successor beneficiaries

Submitted by Paul Jacokes on Mon, 2020-07-20 22:05

I apologize if this question has been posed and answered in this forum and I missed it.

• Granddad wants to leave his IRA accounts to separate accumulation trusts for his children for their respective lives in a manner that allows the trusts to take advantage of the 10-year deferral provision added by the SECURE Act.
• At Child’s death, any remaining assets in the trusts will pass in trust to his children, or to Child’s sibling’s accumulation trust if the child has none.
• Grandchild will receive part of the remaining trust assets outright when he/she reaches age 35 and the rest at age 40.

What are considered best practices for ensuring to the extent possible that all non-“mere successor beneficiaries” of the accumulation trusts are individuals, and hence the trusts qualify as see-through trusts eligible for 10-year deferral, if at the time of Granddad’s death a Grandchild has not attained the age of 35?



Submitted by Alan - IRA critic on Mon, 2020-07-20 23:21

  • Unless the children are EDBs, the 10 year rule will apply regardless of the ages of any remainder beneficiaries, therefore the “mere successor” status no longer matters. The IRA would have to be drained under the 10 year rule.
  • However, whether the trusts are qualified or not will affect the distribution period. For example, if grandfather passes prior to age 80, and if the trust is not qualified perhaps because the trust beneficiary provisions are not submitted to the IRA custodian by the 10/31 deadline, the trust is treated as a non DB entity, and IRA RMDs would be based on grandfather’s remaining life expectancy. If GF passes much after 80, the 10 years will be longer, and therefore better for the trusts to qualify. Further, if GF were to pass prior to RBD, then the 5 year rule would apply to a non qualified trust.

Submitted by Paul Jacokes on Tue, 2020-07-21 16:37

Thank you for the response. My question was perhaps unclear:  I am wondering how to draft the trust documents to strengthen the case for arguing all beneficiaries in the chain are individuals.  This would clearly be the case if grandchildren took outright upon their parent’s (Child’s) death.  But as of the date of Granddad’s death, they wouldn’t be entitled to the trust assets if Child were to die unless they have reached the age of 40 as of that date. Should the  trust instrument include a provision that says in no event shall the grandchild’s interest in the trust be transferred on grandchild’s death to a charity or other non-individual (such as the grandchild’s estate)?I assume from your comment that you don’t believe the IRS will allow an accumulation trust that is otherwise a designated beneficiary (i.e., is a see-through trust) to simply elect the remaining life expectancy spread available to a non-DB trust rather than intentionally foot-faulting on document submission.  I would expect the Service to follow the current regs in this regard and allow the DB to elect the life expectancy rule.

Submitted by Bruce Steiner on Sat, 2020-07-25 16:04

  • The best practice would be not to mandate distribution to the grandchildren.  That will throw the assets into the grandchildren’s estates for estate tax purposes, and expose them to the grandchildren’t creditors and spouses, and Medicaid.
  • Bruce Steiner

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