The general rule is that a designated beneficiary ( D must be an individual. However, in April 2002, the IRS issued the final IRC § 401(a)(9) regulations which relate to required minimum distributions (RMD) from defined contribution plans; the basic rules regarding the determination of the RBD; the determination of who is a DB; and other general rules that apply to both defined benefit and defined contribution plans. These final regulations allow a person to name a trust as a beneficiary and still qualify the trust as a DB for purposes of the minimum distribution rules. (See Life and Death Planning for Retirement Benefits, 6th Edition 2006, Natalie Choate, page 293.)

It is not unusual for a married couple with retirement accounts (IRA) or a qualified retirement plan to designate a trust as its beneficiary. The intent is to provide RMD’s to the surviving spouse and to preserve the excess benefits for the children. In order to preserve the stretch deferral of retirement benefits when paid to a trust, the trust must qualify as a “see-through trust” whereby RMDs can be distributed in annual installments to trust beneficiaries over the life expectancy of the oldest trust beneficiary. If the trust does not qualify as a see-through trust, then the retirement benefits must be distributed under the no-DB rules, in which case the entire retirement account must be distributed no later than December 31 of the year that contains the fifth anniversary of the participant’s date of death.

In order for a trust to qualify as a “see-through trust” and preserve the stretch payout of retirement benefits, the trust must satisfy all five “minimum distribution trust rules” of Treas. Reg. §1.401(a)(9)-4 A-5(b) (hereinafter referred to as “see-through trust” rules):
When a trust is named as a beneficiary of an IRA or other qualified plan, at a minimum, the following must be considered:

1. Does the Trust qualify as a designated beneficiary? Does the Trust qualify as a “see-through trust” for purposes of the minimum distribution rules?
2. Assuming the named beneficiary is the Theodore Kucel Living Trust how can we change the beneficiary to the Marital Trust or the Residuary Trust?
3. How do the required minimum distribution rules apply to the present situation?
4. How do trust accounting concepts of income and principal affect the retirement benefits? If the IRA benefits are payable to a trust, will they qualify for the marital deduction?
5. All beneficiaries must be individuals.

Your question concerns the income tax deferral of retirement benefits. Its also important to consider marital deduction issues associated with naming a trust as a DB. See Revenue Ruling 2006-26 2006-1 C.B. 939 which provides three different factual situations, where the IRS found that a surviving spouse who was the named beneficiary of a decedent's individual retirement account (IRA) or other qualified defined contribution plan, was considered to have a qualifying income interest for life in the IRA and in the marital trust in order to make an election to treat both the IRA and the trust as qualified terminable interest property (QTIP) under section IRC § 2056(b)(7). See attached.
<br><br>Post edited by: steve, at: 2007/10/27 19:51