Ins and outs of look-through trusts

Financial Planning - - CLIENT -

A look-through trust is one that can qual­ify as a des­ig­nated ben­e­fi­ciary by meet­ing IRS re­quire­ments. This al­lows RMDS to be paid out us­ing the age of the old­est trust ben­e­fi­ciary’s life ex­pectancy— in other words, the trust ben­e­fi­ciary with the short­est life ex­pectancy. In ad­di­tion to the re­quire­ments be­low, all trust ben­e­fi­cia­ries must be in­di­vid­u­als or there could be no des­ig­nated ben­e­fi­ciary on the IRA and the stretch op­tion could be lost.

1. The trust is valid un­der state law or would be but for the fact that there is no cor­pus. 2. The trust is ir­re­vo­ca­ble or the trust con­tains lan­guage to the ef­fect that it be­comes

ir­re­vo­ca­ble upon the death of the em­ployee or IRA owner.

3. The ben­e­fi­cia­ries of the trust who are ben­e­fi­cia­ries with re­spect to the trust’s

in­ter­est in the em­ployee’s or IRA owner’s ben­e­fit are iden­ti­fi­able.

4. The re­quired doc­u­men­ta­tion is pro­vided by the trus­tee to the plan ad­min­is­tra­tor no

later than Oct. 31 of the year fol­low­ing the year of the IRA owner’s death.

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