See-Through Trust

DEFINITION of 'See-Through Trust'

A trust that is treated as the beneficiary of an individual retirement account. See-through trusts use the life expectancies of the beneficiaries of the trust in determining the required minimum distributions (RMD) that have to occur after the death of the retirement account holder.

Individual retirement account (IRA) owners are able to choose who will be a beneficiary of the account when the owner becomes deceased. Federal laws prohibit accounts from continuing on indefinitely after the original owner’s death, and required minimum distributions (RMDs) push the account toward liquidation over a period of time. In general, it is difficult to stretch the period of time in which the RMDs can be made over, though investors can create trusts that can be treated as beneficiaries. This is called a see-through trust.

BREAKING DOWN 'See-Through Trust'

In order to set up a trust as a designated beneficiary of a retirement account, several requirements must be passed. The trust must be considered valid and legal under state law, which typically relies on the trust being written, witnessed, and notarized. The trust must be an irrevocable trust, specifically on the death of the owner of the IRA. This means that the beneficiaries can be changed up to the point of the IRA owner’s death, but not afterward.

The beneficiaries of the trust must be considered eligible and named, with non-living entities or charities not being able to qualify because they do not have a life expectancy. The age of the oldest beneficiary of the trust is used to calculate the RMD.

Documentation of the see-through trust must be provided to the custodian of the IRA by October 31st of the year following the IRA owner’s death. The regulations governing the trust and how it relates to the distribution of the IRA are part of 26 Code of Federal Regulations Section 1.401(a)(9).

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