Trusts as IRA Beneficiaries: See-Through Rules and the 10-Year Trap

Naming a trust as the beneficiary of an IRA is sometimes the only way to control distributions to a minor, a spendthrift heir, or a beneficiary with special needs. It is also one of the most common drafting failures in estate planning. A trust that does not qualify as a "see-through" trust under Treasury Regulation §1.401(a)(9)-4 forces the IRA into a five-year payout. A see-through trust that qualifies as a "conduit" trust under SECURE Act §401 may force the entire IRA out within ten years regardless of the trust's distribution provisions. The drafting tolerance is unforgiving.

The see-through requirements

Treas. Reg. §1.401(a)(9)-4(f)(2), finalized July 2024, requires a trust to satisfy four conditions to look through to its beneficiaries for §401(a)(9) purposes:

1. The trust is valid under state law (or would be but for the lack of a corpus).
2. The trust is irrevocable, or becomes irrevocable upon the death of the IRA owner.
3. The beneficiaries are identifiable from the trust instrument.
4. Required documentation is provided to the IRA custodian by October 31 of the year following the owner's death.

A trust meeting these requirements is a "see-through" trust. Its underlying beneficiaries are then treated as the designated beneficiaries of the IRA for RMD purposes.

Conduit vs accumulation trusts

• Conduit trust. All amounts distributed from the IRA to the trust must be immediately distributed by the trust to the individual beneficiary. The beneficiary is treated as the sole designated beneficiary; payout follows that beneficiary's classification (eligible designated beneficiary, designated beneficiary, etc.).
• Accumulation trust. The trust may accumulate IRA distributions inside the trust. All potential beneficiaries — including remainder beneficiaries — are tested. Under the 2024 final regulations the oldest such "countable" beneficiary's classification controls.

The post-SECURE payout categories

For deaths after December 31, 2019, §401(a)(9)(H) divides designated beneficiaries into:

• Eligible designated beneficiaries (EDBs): surviving spouse, minor child of the participant (until majority), disabled or chronically ill individuals, individuals not more than 10 years younger than the participant. EDBs may use the life-expectancy stretch.
• Designated beneficiaries (other than EDBs): 10-year rule. The entire account must be distributed by the end of the 10th year after death. If the participant died on or after the required beginning date, annual RMDs in years 1–9 are also required per the July 2024 final regs.
• Non-designated beneficiaries (estate, charity, non-qualifying trust): 5-year rule (if pre-RBD) or remaining-life-expectancy method (if post-RBD).

Worked example: the special-needs accumulation trust

A 70-year-old IRA owner names an accumulation trust as beneficiary. Primary lifetime beneficiary: a disabled adult daughter. Remainder beneficiary on the daughter's death: a charity. The trust qualifies as a see-through trust and meets the "applicable multi-beneficiary trust" rules under §401(a)(9)(H)(iv): the disabled daughter is treated as the sole designated beneficiary. Result: life-expectancy stretch using the daughter's age, not the charity's status.

If the same trust instead named the daughter's siblings (non-disabled) as remainder beneficiaries, the trust would lose the §(H)(iv) exception, and because one of the countable beneficiaries is not an EDB the 10-year rule applies. The disabled daughter would lose her stretch.

Common mistakes

• Using a generic revocable trust as IRA beneficiary. If the trust permits payments to a charity (or to the estate), the entire IRA may fall to the 5-year rule.
• Forgetting the October 31 documentation deadline. Custodians require a copy of the trust or trustee certification. Missing the deadline disqualifies see-through status.
• Drafting a conduit trust for a spendthrift beneficiary. The conduit requirement defeats the purpose: the entire IRA must flow through to the beneficiary within the payout period.
• Ignoring state-law trust modification. Decanting and judicial modification may help, but only if completed before the September 30 beneficiary-determination deadline of the year following death.
• Confusing the spouse rollover with trust planning. A surviving spouse named directly as beneficiary may roll the IRA to her own name. A spouse who inherits through a trust generally cannot, though the 2024 final regs created a limited "deemed direct beneficiary" exception.

Sources

• Treasury Regulation §1.401(a)(9)-4, final regulations (July 2024): federalregister.gov 2024-14542
• Internal Revenue Code §401(a)(9), required minimum distributions: law.cornell.edu/uscode/text/26/401
• SECURE Act of 2019, Pub. L. 116-94, §401: congress.gov/bill/116th-congress/house-bill/1865
• IRS Publication 590-B, Distributions from IRAs: irs.gov/pub/irs-pdf/p590b.pdf
• Natalie Choate, Life and Death Planning for Retirement Benefits, 8th ed.

If a trust appears anywhere in your beneficiary chain, the drafting deserves a second look. Explore the free educational tool.