See-Through Trusts: Are you an IRA Expert?
By Jeffery Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott
Welcome to this month’s installment of Are You an IRA Expert? Always thought you knew more than the next guy about IRAs and retirement accounts? Well now’s your chance to prove it. Below are three questions, ranging from beginner to expert. Test your IRA skills by trying to get all three right!
Beginner: What is a “see-through” (a.k.a. “look -through”) trust?
Intermediate: What are the four requirements for a trust to be considered a see-through trust?
Expert: Tim has named a discretionary (a.k.a. accumulation) trust that qualifies as a see-through trust as the beneficiary of his IRA. The current (income) beneficiaries of the trust are his children. After his children die, Tim’s grandchildren will become the trust beneficiaries. After the death of his grandchildren, the balance of the trust assets will pass to the Salvation Army. For the purpose of calculating required minimum distributions from Tim’s IRA after death, what is the correct life expectancy to use?
Beginner: Only designated beneficiaries are allowed to stretch inherited retirement accounts. In general, a designated beneficiary is a living, breathing person. A special exception exists however, for see-through trusts. A see-through trust is a trust that meets certain provisions (see below) that allow the beneficiaries of the trust to stretch distributions out over the age of the oldest trust beneficiary’s life expectancy.
Intermediate: For a trust to qualify as a see-through trust…
1) It must be valid under state law
2) It must be irrevocable at death
3) The beneficiaries must be identifiable
4) A copy of the trust must be given to the custodian by October 31st of the year following the year of death.
Expert: Tim’s IRA must be emptied by the end of the fifth year after the year of death. When a discretionary trust is named as a beneficiary of an IRA, the age of the “oldest” beneficiary is determined after considering both the current and future beneficiaries. Here Tim’s trust provides that the Salvation Army, a future beneficiary, will receive any remaining trust assets after the death of his grandchildren. Since a charity is not a living, breathing person and has no life expectancy, the “oldest” beneficiary has no life expectancy and the entire IRA must be withdrawn using the 5-year rule.
So how’d you do? Are you an IRA Expert? Unless the answer is a resounding yes, you may want to consider consulting with an advisor who has specialized knowledge and training in this area when you have these, or other IRA questions.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to email@example.com for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at firstname.lastname@example.org or (516) 536-8282 with any questions.