WHAT EXACTLY ARE IRA BENEFICIARY “SEE-THROUGH” TRUST PROVISIONS?

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IRA BENIFICIARY “SEE-THROUGH” TRUST PROVISIONS

A valuable tool for protecting IRA assets as a component of estate planning is the use of a trust as an IRA beneficiary. These “see-through” trusts can provide valuable flexibility in a comprehensive estate plan, but also carry both income tax consequences and very strict IRS requirements for qualification. Estate planning counsel must know the detailed IRS rules in drafting these “see-through” trusts to meet requirements for Required Minimum Distributions (RMDs) and income accumulation.

IRA beneficiary trusts generally come in two types: “conduit trusts,” and “accumulation trusts.” Conduit trusts are marked by specific requirements as to how to calculate required minimum distributions over the lifetime of specified beneficiaries. It is important to note that IRA beneficiary trusts are drafted as trusts (whether QTIP trusts or any other) valid under state law, but contain specific language and provisions that qualify the trust for see-through treatment.
Whether estate counsel is drafting a trust to function as a conduit trust or an accumulation trust, estate planning counsel must know the rules and required language in drafting an IRA beneficiary trust in order to avoid serious tax consequences.

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