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Are you cloudy on your see-through trust options?

When considering your trust options, you may wonder about the best ways to utilize this type of estate planning tool. Trusts can have a variety of uses and can even act as beneficiaries to certain accounts. However, if you hope to create a trust for this use, you may need to understand the specific type of trust needed or what provisions may apply.

When it comes to naming a trust as the beneficiary to your individual retirement accounts, you may need to utilize a see-through trust. This type of designation allows for the contents of your IRA to pass to the trust, and after it goes into the trust, the contents will then pass to the beneficiaries named to the trust.

Creating a trust

In order to create a see-through trust, you must use an irrevocable trust. This means that after the account holder's death, the beneficiary designations cannot change. Additionally, in order for a trust to act as a beneficiary for an IRA, the trust must have gone through validation and the proper legal requirements under state law.

In order for the IRA to go into the trust, the beneficiaries of the trust must also meet certain requirements. For example, you must have named the beneficiaries to the trust, and those beneficiaries must be living individuals. The latter stipulation applies because charities and other organizations cannot act as beneficiaries due to requirements relating to required minimum distributions.

Required minimum distributions

Required minimum distributions refer to the amount of money that IRA owners must withdraw from their accounts annually after reaching a certain age or that must be distributed after the owners' deaths. This requirement ensures that the account liquidates over time rather than continuing indefinitely. Naming a see-through trust as a beneficiary to an IRA may help stretch liquidation out for a longer period of time.

When determining the RDM amount for an IRA with a trust as beneficiary, the beneficiaries of the trust go into consideration. The age of the oldest beneficiary and his or her life expectancy go into the calculation of the RDM. The life-expectancy stipulation plays a role in why non-living entities cannot act as see-through trust beneficiaries.

Additional information

Because a see-through trust can have benefits relating to distribution over time and tax impacts, you may wish to explore this option further. Discussing with an experienced Illinois attorney the possibility of naming a trust as beneficiary for your IRA could help you determine whether it could work in your best interests.

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Leonard F. Berg, Attorney at Law