3907 / When may a trust be a designated beneficiary for purposes of the minimum distribution requirements?

Editor’s Note: The SECURE Act, enacted December 20, 2019, changed the required beginning date for required minimum distributions (RMDs) from age 70½ to age 72 (the change applies with respect to distributions to participants who reach age 70½ in 2020 and thereafter).  Beginning in 2023, the SECURE Act 2.0 increased the required beginning date to age 73. The relevant age will increase to 75 in 2033.¹

General Rule Documentation Requirements for Trust Beneficiaries of Individuals Dying After December 31, 2019

Under the general rule for individuals dying on or after January 1, 2020, beneficiaries of a trust may be treated as having been designated as beneficiaries of the employee under a qualified plan (or individual under an IRA) for purposes of determining the period over which RMDs must be made. The SECURE Act did not eliminate the IRC Sections governing designated beneficiaries when there is a trust, but further limited the applicability of who are eligible to receive distributions based upon the life expectancy of the designated beneficiary (so-called “stretch distributions”). There are now three classes of beneficiaries: (1) non-designated beneficiaries, (2) designated beneficiaries, and (3) eligible designated beneficiaries (EDBs).

Under the SECURE Act, distributions based upon life expectancy of the beneficiary are limited to an individual who falls into one of five categories of the new class referred to as “eligible designated beneficiaries” (See Q ), who are a new subset of those who are “designated beneficiaries” as defined by pre-SECURE Act law.² Therefore, the pre-SECURE Act documentation requirements discussed above for creating a “see-through trust” to obtain the advantage of the lifetime stretch distribution will generally continue to apply.

Beneficiaries of a see-through trust can continue to be treated as designated beneficiaries under regulations finalized in 2024.³ The regulations continue to apply the requirement that the trust beneficiaries be identifiable. Beneficiaries of a valid see-through trust will be taken into account if they could receive amounts in the trust representing the participant’s interest in the retirement plan that are not contingent upon, or delayed until, the death of another trust beneficiary who predeceases the plan participant. Those beneficiaries with only remote interests will be disregarded.

Under the 2024 final regulations, the plan administrator may require the trustee to provide a list of trust beneficiaries with a description of the conditions on their entitlement instead of the actual trust document.⁴ This documentation must be provided by October 31 of the year after the original owner’s death. The trustee need not provide the actual trust document to an IRA custodian.

Beneficiaries must continue to be identifiable to be treated as designated beneficiaries.⁵ Trust beneficiaries will not cease to be “identifiable” if the trust names a class of individuals and other individuals are later added to the class (for example, “children” or “grandchildren”). Similarly, if state law allows the trust to be modified after the owner’s death to add or change beneficiaries, the beneficiaries will not cease to be identifiable. If an individual is given a power of appointment and exercises that power by a certain date, the trust will not fail the identifiability
requirement.

For a more detailed discussion of eligible designated beneficiaries and the new rules governing distributions from trusts of employees dying after December 31, 2019, see Q .

Conduit Trusts v. Accumulation Trusts

Final IRS regulations released in 2024 provide significant guidance on the use of trusts as retirement account beneficiaries.  Because the SECURE Act bifurcated account beneficiaries into two groups: designated beneficiaries and eligible designated beneficiaries (EBD), the classification of trust beneficiaries is now important in determining whether the stretch distribution option or ten-year rule applies.

Under the 2024 final regulations, trust beneficiaries are also considered retirement account beneficiaries when the trust is technically named as beneficiary (assuming the trust qualifies as a see-through trust under pre-SECURE Act law, which has not changed, see below).⁶  However, the regulations distinguish between conduit and accumulation trusts.⁷

When a conduit trust is used, the retirement account distributions must be distributed immediately to beneficiaries.  Only the beneficiaries who will receive those distributions are considered retirement account beneficiaries.

Accumulation trusts allow the funds to accumulate in the trust.  When an accumulation is named beneficiary, both primary beneficiaries who can receive the funds without contingency and residual beneficiaries who only receive the funds after a primary beneficiary’s death are treated as retirement account beneficiaries.

Two exceptions exist:

• The residual beneficiary could only receive retirement assets from the trust after the death of another residual trust beneficiary (and is not also a primary beneficiary) who did not predecease (and is not treated as having predeceased) the original owner, and


• Where the trust terms require a full distribution of the retirement assets in the trust a beneficiary by the later of: (1) the year following the year of the employee’s death; and (2) the end of the year that the primary beneficiary turns 31 (ten years after the age of majority), then any residual beneficiary whose entitlement to distributions is conditioned on the primary beneficiary’s death before the full distribution is required is disregarded as a beneficiary of the employee.⁸

However, residual beneficiaries with access to the retirement distributions in the trust during the primary beneficiary’s life are treated as retirement account beneficiaries.  Payments made for the benefit of a trust beneficiary are treated as having been made directly to that beneficiary.⁹

Separate Trust Rules

When a retirement account owner has multiple beneficiaries, they may name a trust as beneficiary that will be divided into separate trusts upon their death, each for the benefit of an individual beneficiary.  The final regulations provide that the minimum distribution rules apply to each individual beneficiary based on their independent status as EDBs or non-EDB.¹⁰  This is a departure from the 2022 proposed regulations, which lumped all beneficiaries together and used the shortest deadline.

For this rule to apply, the trust must otherwise qualify as a see-through trust.  The trust document must also clearly state how the funds will be allocated among the separate trusts without leaving any discretion to a trustee or otherwise.

Trusts for the Benefit of Disabled or Chronically Ill Beneficiaries

Special rules apply when retirement account owners create trusts for the benefit of multiple beneficiaries, one of whom is disabled or chronically ill (so thus qualifies as an EDB).¹¹  The trust can remain a single trust after the original owner’s death.  The IRS refers to these trusts as applicable multi-beneficiary trusts in the final regulations.

Even if the trust has multiple beneficiaries, some of whom are not EDBs, the disabled or chronically ill beneficiary can continue to use the life expectancy distribution method.  SECURE Act 2.0 also modified the rules so that in these cases, certain charitable organizations can be treated as designated beneficiaries without causing the trust to lose its see-through status.  The final regulations clarify that the trust can provide for termination of the disabled or chronically ill beneficiary’s trust interest if necessary to qualify for public benefits.¹²

However, the rules only apply if the trust provides that no trust beneficiary other than the disabled or chronically ill beneficiary may receive payments from the trust prior to the death of the disabled or chronically ill beneficiary (even if that beneficiary’s trust interest has terminated prior to death).

General Rule Documentation Requirements for Trust Beneficiaries of Employees Dying Prior to January 1, 2020

Under pre-SECURE Act law, only an individual could be a designated beneficiary for required minimum distribution purposes. However, if special requirements are met, beneficiaries of a trust could be treated as having been designated as beneficiaries of the employee under the plan for purposes of determining the period over which required minimum distributions must be made.

During any period in which required minimum distributions are being determined by treating the beneficiaries of the trust as designated beneficiaries of the employee, the requirements could be met if:

(1)  the trust is a valid trust under state law, or would be but for the fact that there is no corpus;

(2)  the trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee;

(3)  the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the employee’s benefit are identifiable from the trust instrument, as described below; and

(4)  the documentation described below has been provided to the plan administrator.¹³

Under pre-SECURE Act law, the IRS privately ruled that a see-through trust’s provision for payment of expenses such as funeral and burial costs, probate administration expenses, and estate costs, whether before or after September 30 of the year after the decedent’s death, did not preclude the trust from meeting the foregoing requirements.¹⁴

A designated beneficiary did not need to be specified by name in a plan or by an employee to a plan to be a designated beneficiary, so long as the individual who is to be the beneficiary is identifiable under the plan as of the date the beneficiary is determined (see above). The members of a class of beneficiaries capable of expansion or contraction will be treated as identifiable if it is possible, as of the date the beneficiary is determined, to identify the class member with the shortest life expectancy.¹⁵

Pre-SECURE Act Documentation Requirements for Distributions before Death

To satisfy the documentation requirement for trust beneficiaries to be treated as designated beneficiaries for purposes of lifetime distributions, an employee must meet one of two requirements:

(1)  the employee must provide to the plan administrator a copy of the trust and agree that if the trust instrument is amended at any time in the future, the employee will, within a reasonable time, provide the plan administrator with a copy of any such amendment, or

(2)  the employee must provide the plan administrator with a list of all the beneficiaries (including contingent and remainder beneficiaries, as well as a description of the conditions on their entitlement) of the trust. If the spouse is the sole beneficiary, the employee must provide a description of the conditions of the remainder beneficiaries’ entitlement sufficient to establish that fact. The employee must certify that to the best of the employee’s knowledge, the list is correct and complete, and that the other requirements for the beneficiaries of the trust to be treated as designated beneficiaries have been satisfied. The employee also must agree to provide a copy of the trust instrument on demand. In any event, if the trust is amended, the employee must provide a copy of any such amendment or provide a corrected certification to the extent that the amendment changes the information previously certified.¹⁶

Pre-SECURE Act Documentation Requirements for After-Death Distributions

To satisfy the documentation requirements for required minimum distributions after the death of an employee (or after the death of an employee’s surviving spouse, if the spouse dies after the employee but before distributions have begun), the trustee must meet following requirements by October 31 of the calendar year after the year of the employee’s death:

(1)  the trustee must:

a. provide the plan administrator with a final list of all the beneficiaries (including contingent and remainder beneficiaries, as well as a description of the conditions on their entitlement) as of September 30 of the calendar year following the calendar year of the employee’s death;
b. certify that to the best of the trustee’s knowledge the list is correct and complete and that the trust meets the general requirements listed above for all trust beneficiaries; and
c. agree to provide a copy of the trust instrument to the plan administrator on demand; or

(2)  the trustee must provide the plan administrator with a copy of the actual trust document for the trust that is named as a beneficiary of the employee under the plan as of the employee’s date of death.¹⁷

If the foregoing requirements were met, a plan would not fail to satisfy Section 401(a)(9) merely because the actual terms of the trust instrument were inconsistent with the information in the certifications or trust instruments previously provided. This relief applied, however, only if the plan administrator reasonably relied on the information provided and the required minimum distributions for calendar years after the discrepancy was discovered are determined based on the actual terms of the trust instrument.¹⁸ The actual trust terms would govern for purposes of determining the amount of any excise tax under Section 4974 for failure to take the RMD for the year ( Q 3910).¹⁹