New Rules Loosen or Eliminate Documentation Rules for See-Through Trusts

Sarah Brenner, JD
Director of Retirement Education

The new required minimum distribution (RMD) rules recently issued by the IRS include some good news for trusts named as retirement account beneficiaries. A documentation requirement (that tripped up many trustees resulting in a shorter payout period from the inherited account) has been loosened for plans and eliminated for IRAs.

See-Through Trusts

Only individuals who are named on the IRA beneficiary form (or named through the IRA custodial document if no beneficiary is named on the beneficiary form) can be designated beneficiaries. A trust is not an individual, so it cannot be a designated beneficiary. But if the trust qualifies as a “look through” or “see-through” trust, then the individual beneficiaries of the trust can qualify as designated beneficiaries for IRA distribution purposes. Meeting these requirements can allow a trust to use the 10-year payout period or, in some cases, even the stretch. Failing to meet the requirements outlined below can result in the payout period being reduced to five years.

New Rules

The final regulations keep the see-through trust concept. However, they simplify the documentation requirement for trusts that are beneficiaries of plan accounts, and do away with it entirely for trusts that are IRA beneficiaries.

Under the new rules, to qualify as a “see-through” trust for distribution purposes, the trust must meet the following requirements:

1. The trust is valid under state law or would be but for the fact that there is no corpus.

2. The trust is irrevocable, or the trust contains language to the effect it becomes irrevocable upon the death of the employee or IRA owner.

3. The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the employee’s or IRA owner’s benefit are identifiable.

4. OLD RULE: The required trust documentation must be provided by the trustee of the trust to the plan administrator no later than October 31 of the year following the year of the IRA owner’s death.

NEW RULE: The required documentation rules are simplified for trusts that are plan beneficiaries. A plan administrator can require the trustee to provide a list of trust beneficiaries with a description of the conditions on their entitlement instead of the actual trust document.

For trusts that are IRA beneficiaries, the documentation requirements are eliminated. A trustee of a see-through trust is NOT required to provide the trust documentation to an IRA custodian.