An Article in a Roth IRA Trust drafted for me relating to “Distribution for Death Taxes” states:
“[i]If, on the death of any person there are imposed any estate, inheritance, legacy, death taxes and duties of any nature (including interest and penalties thereon) by reason of inclusion of the corpus and income of the trust created herein in the estate of such person, an amount equal to the increase in such taxes and duties imposed on such estate as a result of such inclusion, shall be charged to the principal of this Trust without further apportionment or right of reimbursement from any beneficiary or recipient under this Agreement unless such person’s Will provides to the contrary. The Trustee shall contribute to the personal representative of the estate of such person, for any such taxes, duties, interest or penalties such amounts, at such time or times, as said personal representative shall certify to the Trustee as being required for such purposes, provided, however, that, to the extent other assets are available, no proceeds from insurance shall be contributed and no distributions from retirement plans shall be taken for such purposes[/i].”

Will this Article preclude the trust from qualifying as a “look-through” trust? My thought process is as follows. One requirement to qualify a trust as a “look-through” trust is that the beneficiaries must be living individuals identifiable from the trust instrument. However, since the Article states that the trustee shall contribute “[i]such amounts … for taxes… as being required[/i]”, such language introduces a non-individual beneficiary which would negate the “look-through” property of the trust. There appears to be savings language in the Article, namely, “[i]to the extent other assets are available, … no distributions …may be taken[/i]”. But, if there are no other assets or insufficient assets to pay the “[i]estate, …, death taxes[/i]” outside the trust, the trust assets will be needed to pay death taxes.

I realize there is a “shake-period” that can be used to resolve certain issues regarding beneficiaries, such as cashing-out or eliminating improper beneficiaries by September 30 of the year following my death — this critical date could be missed. But I believe the best approach is to replace the original Article with a re-stated Article which simply states that “No Trust assets may be contributed for death taxes.” Would the re-stated Article correct a potentially fatal error?