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This is the personal blog of Sterling Olander, Certified Public Accountant and Attorney at Law. For over five years, I have worked as a tax professional helping clients with tax mitigation strategies, tax controversies, business transactions, wealth preservation structures, tax-exempt organiations, and estate plans.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Trusts as Beneficiaries of Retirement Plans

In order to qualify as a "retirement plan" under the Internal Revenue Code, 401(k)s, individual retirement accounts, and other retirement arrangements must be distributed to the employee that owns the plan or that employee's designated beneficiaries pursuant to I.R.C. § 409(a)(9) and the accompanying regulations. For purposes of these rules, only individuals are permitted to be designated beneficiaries of a retirement plan. One reason for this is so that required minimum distributions can be calculated.

However, if certain requirements are met, a trust may be named as the beneficiary of an employee's retirement plan, and the individual beneficiaries of the trust will be treated as having been designated as the plan beneficiaries. For an excellent breakdown of how the required minimum distribution rules work where a trust is a beneficiary, see the chart prepared by Keebler and Associates located here. Naming a trust as a beneficiary of a retirement plan can be a useful estate planning technique, but after the employee passes away, the custodian of the retirement plan will need assurance that the requirements described in Treas. Reg. § 1.401(a)(9)-4 are satisfied.

These so-called "see-through" rules for a trust will be satisfied after the employee's death if the beneficiaries of the trust with respect to the retirement plan, if not specified by name, are identifiable from the trust instrument and certain documentation is provided to the custodian. The documentation requirements include (1) a list of all of the current beneficiaries of the trust, (2) a list of all the contingent and remainder beneficiaries of the trust as well as a description of the conditions on their entitlement, (3) a certification that this beneficiary list is correct.

Finally, the trust must be valid under state law and be irrevocable, and the trustee must agree to provide a copy of the trust instrument to the custodian upon demand. The trust agreement should be drafted with these rules in mind by restricting distributions of any retirement plan assets to individual trust beneficiaries and requiring that such assets be distributed in accordance with I.R.C. § 409(a)(9) and the regulations. Compliance with these rules will allow a trust to be a designated beneficiary of a retirement plan.