Trust Look-Through Rules after the SECURE Act

Visual examples, discussion, and more...

Table of Contents

1. Intro

2. Symposium

3. Download of Slides

Intro

Prior to 2020, the trust look-through rules for retirement assets (qualified plans, and individual retirement accounts - both traditional and Roth) were confusing to even the most advanced practitioner. Navigating these rules required not just adept trust drafting skills (whether you were dealing with testamentary trusts in a will, a revocable trust or subtrusts thereof in which all of a decedent’s assets were to be administered, or a stand-alone trust created to be the beneficiary of retirement assets), but also a glaring lack of guidance on drafting beneficiary designations for trusts that was often filled in by various Private Letter Rulings.

There is good news and bad news. New Treasury Regulations have somewhat improved these issues. With this improvement, however, have come some trade-offs. For one, regulations are no longer given the same weight they once were. Also, we now have two versions of the SECURE Act, and their related changes and complications, to contend with.

Nonetheless, some problems with the old pre-SECURE Act rules have been addressed. A lack of clarity around exactly “who” counts as a trust beneficiary has been mostly shored up, but not enough to relieve you of the burden of custom drafting for retirement assets in trust. Separate account rules have been clarified, including special application to subtrusts that was once prohibited as a matter of course. But, these separate account rules require enhanced attention to the drafting of the trust itself. Decantings, modifications, reformations, and exercises of powers of appointment have been addressed, but timing matters.

At the same time, we now have three different classes of beneficiary to contend with, and two different sets of required distribution rules for each class of beneficiary (depending on whether or not a retirement asset owner dies before or after their required beginning date). This creates, to start, six different sets of basic payout rules that can be difficult to recall. And, within these payout rules, there are even more special rules and exceptions that can apply for spouses, minor children, and trusts for disabled or chronically ill individuals.

Which brings us to you. These may or may not be issues you deal with on a routine basis in estate planning. Nonetheless, they are rules that can lead to fear or avoidance. Starting in 2014, I set out to teach myself the old rules, and even after 10 years of applying both the old and new rules (coupled with a brief stint as an employee benefits attorney) I still did not feel fully comfortable navigating them. Unlike me, you may not have the time and patience to engage in a comprehensive course of study.

For this reason, I have put together slides that illustrate these principles in a visual manner. This is a blind experiment for me, to see if perhaps I can iterate upon the efforts of those experts out there who have done such a good job of educating and advising professionals in this field while, in the process, saving you some time.

With that, I am excited to bring you Are We Finally SECURE About IRA Beneficiary Planning? A look at the recently-finalized SECURE Act 1.0 and 2.0 Treasury Regulations. The slides are included for download after the paywall below.

Note that these materials are not a comprehensive discussion of the SECURE Act changes. Instead, I have focused on issues relevant to estate planning professionals - with emphasis on administration of retirement assets after death, identification of beneficiaries, and trust look-through rules. In the process, I have de-emphasized some areas of importance such as calculations of required minimum annual distributions, changes to the tables used for these calculations, spousal beneficiary options, defined benefit plans and annuities within plans or accounts, differences between types of qualified defined contribution plans, and penalties for non-compliance.

Symposium

I will be presenting these materials in a 2 hour session on December 12, 2024 at 11:00 am ET/10:00 am CT/9:00 am MT/8:00 am PT. CLE credit will be offered in select states. For more information on how to register for this session, or a companion 1-hour session on implications of the Corporate Transparency Act after last week’s preliminary injunction, click the button below:

Attendance is complimentary for paid subscribers, using a promotional code included with the slides after the paywall below or in your welcome e-mail if you are a new paid subscriber.

If you cannot attend, I will have added materials available after the session. And, in the meantime, you can preview the slides below. Here are some quick examples of what is included visually:

Download of Slides