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The Hidden Minimum Required Distribution Rules Dangers in Drafting a See-Through Trust (Part 1)

Estate planning practitioners are likely familiar with the See-Through Trust, and its advantages. Let’s say wife dies after husband, and either rolled-over his IRA, or had one of her own. Say further that wife dies leaving all her property (including the IRA) to their two children, in trust. The beneficiary of the IRA is the trust (intended to qualify as a See-Through Trust). The trust says the trustee shall distribute all trust property to the beneficiaries for their health, education, maintenance and support. Question: how frequently must the IRA make distributions to the trust to satisfy the IRC Section 401(a)(9) minimum distribution rules? There exists one of two possible answers: either (a) ratably over the life of the “designated beneficiary”; or (b) not later than the end of the year containing the fifth anniversary of the participant’s (wife’s) death. Since you believe the trust qualifies as a See-Through Trust, you probably think the IRA administrator may distribute the IRA benefits ratably over the lives of the children and still satisfy 401(a)(9)? But can you really? More to come on this….