What Disqualifies a Trust as “Pass-Through”?

Submitted by Rick Jurrens on Tue, 2022-11-29 16:39

A client names his living trust as his IRA Beneficiary. The living trust limited the spouse to the 5 & 5 Rule. The spouse has now passed. When the original client passed, he was already taking RMD’s in 2018. The two surviving children are now 100% beneficiaries of the trust once the spoused passed and they have full rights to distribute the trust assets. Will the remaining IRA assets need to be distributed within 5 years after the client’s date of death or do the children have the option of taking out the remaining IRA assets to the trust over a 10 year period from the spouse’s death? They have been receiving conflicting advice from the estate attorneys. The remaining IRA value is just over $600,000.



Submitted by Alan - IRA critic on Tue, 2022-11-29 17:10

  • If the trust was qualified for look through, annual RMDs have been based on the age of the surviving spouse. Upon passing, the 10 year rule will apply, and per the proposed IRS Secure Act Regs, annual RMDs must continue in years 1-9 of the 10 year period because the client passed after his RBD. Those RMDs would continue the RMD schedule used since 2019 regardless of whether distributions are made to the trust or the trustee of the trust is allowed to distribute the IRA out of the trust to the trust beneficiaries. The 5 year rule does not apply here.
  • If the trust was not determined to be qualified in 2019, the RMDs to the trust would have been based on the remaining LE of the client, and that RMD schedule would not be affected by the death of the SS. Neither the 5 year rule or 10 year rule would apply.

Submitted by Rick Jurrens on Tue, 2022-11-29 18:42

Just for clarification, what would cause the trust to be considered not a qualified trust?  There is quite a bit of confusion on this issue among various advisors.

Submitted by Alan - IRA critic on Tue, 2022-11-29 19:06

  • The following is a list of requirements, with the first 3 dependent on proper drafting, and the final one dependent on action by the trustee of the trust to provide a copy of the trust instrument to the IRA custodian by the 10/31 deadline in the year following death. All 4 must be met for the trust to be qualified for look through. Note that whether the trust is a conduit trust or accumulation trust only affects what the trustee does with the IRA distributions made to the trust.
  • (1) The trust is a valid trust under state law, or would be but for the fact that there is no corpus.(2) The trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee.(3) The beneficiaries of the trust who are beneficiaries with respect to the trust‘s interest in the employee‘s benefit are identifiable within the meaning of A-1 of this section from the trust instrument.(4) The documentation described in A-6 of this section has been provided to the plan administrator.

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