Splitting a trust (see-through) if the sole trust beneficiary dies

Submitted by Diane Goldstein on Fri, 2025-03-21 13:37

A Trust for Bene X who is a DB of a qualified see-through trust of orig owner’s (parent of bene = P) IRA.

Trust takes RMDs in years 1-4. X (Sole Bene) dies in year 4. Trust terminates and is distributable to 2 new separate trusts for X’s children.

Trustees of Trust sign form designating separate trusts for X’s children as successor beneficiaries.

Is IRA distributable to separate trusts for X’s children who must continue RMDs in years 5-10 and withdraw the whole IRA by the end of year 10? Or, must the IRA be liquidated by reason of X’s death?

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Permalink Submitted by Alan - IRA critic on Fri, 2025-03-21 14:37

As long as the original trust contains specific provisions with respect to splitting into sub trusts upon death of X, the IRA custodian can accept assignment from the trustee of the trust into the two new separate trusts. This is not a taxable distribution and it will also not affect the original RMD schedule.

This all boils down to having a cooperative IRA custodian. Some custodians even balk at accepting assignment requests from executors of a will even though the IRS has allowed this for years, and this is basically the same issue. Perhaps the custodian has retained a copy of the trust beneficiary provisions, which up to now was required to be submitted to the custodian in order for the trust to be qualified for look through in the first place.

It’s a different story if the first trust was not drafted to reflect to include specifics after X passed and the trustee decided at the time to create these two trusts. That would trigger a taxable distribution.