See-Through Trust

A see-through trust is treated as the beneficiary of an individual retirement account (IRA). 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 over which the RMDs can be made, though investors can create trusts that can be treated as beneficiaries. This is called a 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 31 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).

Another type of common trust is a marital trust or fiduciary relationship between a trustor and trustee for the benefit of a surviving spouse and any heirs of the married couple. Also called an "A" trust, a marital trust goes into effect when the first spouse dies. Assets are moved into the trust upon death, and the income that these assets generate go to the surviving spouse. Under some arrangements, the surviving spouse can also receive principal payments. When the second spouse dies, the trust passes to its designated heirs.