United States: Elder, Estate Planning & Probate Law: Making Trusts Beneficiaries Of Qualified Retirement Accounts

Published in New Hampshire Bar Association - Bar News

Many clients contribute to qualified retirement accounts (e.g., IRAs, Section 401(k) plans and Section 403(b) plans) for income tax planning and retirement planning purposes. In general, contributions into qualified retirement accounts appreciate income tax-free for as long as funds remain in the account. With the exception of Roth IRAs and Roth 401(k) plans, distributions to the account owner are subject to income tax when they are withdrawn.

To ensure that qualified retirement accounts are used by the account owner during their retirement years, tax laws require that required minimum distributions (RMDs) are distributed over the owner's life expectancy. In general, the required beginning date (RBD) is the April 1 of the year following the year in which the owner turns 70 ½. If the RMDs are not withdrawn, then an excise tax is imposed.

If a client dies prior to the full distribution of the account, then the account is paid to whomever is named as the beneficiary. If the new beneficiary is an individual, then that person can withdraw those funds immediately, or they can be "rolled over" to an IRA of their own. The beneficiary then must make RMD withdrawals based on the beneficiary's life expectancy under the single life table and the account value on the Dec. 31 of the prior year.

Where an owner of a qualified retirement account wishes to have those remaining funds managed for traditional estate planning reasons – for special needs beneficiaries, for benefit of a second spouse, for beneficiaries who are not yet able to manage funds, for spendthrift purposes, etc. – then a trust is a logical choice.

An important secondary consideration of making a trust the beneficiary is to maximize the distribution period of time to allow for asset appreciation and income tax deferral. If a trust is a "designated beneficiary," then the trust can withdraw funds based on the oldest trust beneficiary's life expectancy. For a trust to have a "designated beneficiary," four requirements need to be met:

  1. The trust is a valid trust under state law.
  2. The trust is irrevocable or, will, by its terms, become irrevocable upon the death of the qualified retirement account owner.
  3. The beneficiaries of the trust are identifiable.
  4. A copy of the trust documents are provided to the plan administrator by Oct. 31 of the year immediately following the year in which the IRA owner died.

Attorneys should consider drafting trusts that qualify for "designated beneficiary" status. The IRS has identified several trusts that will meet the qualifications.

Conduit Trust

The first type of trust is a "conduit trust." If the trust requires RMDs and any other amounts withdrawn from a qualified retirement account, to be distributed to the trust beneficiary "upon receipt by the trustee," then the income beneficiary's life expectancy can be used for determining the length of the distribution period. The life expectancy of the remainder beneficiaries is ignored.

Conduit trusts are not recommended for trusts with special needs beneficiaries, or in other situations where mandatory distributions are not advisable (e.g., trusts for minors, etc.). Frequently, conduit trusts are used when the beneficiary of the conduit trust is a second spouse and having an outright distribution to the second spouse might place the children from the first marriage at risk.

Accumulation Trust

The second type of trust which qualifies as a designated beneficiary is an "accumulation trust." In that case, all current and potential trust beneficiaries are considered for life expectancy purposes. The oldest beneficiary's life expectancy is then used for the distribution period. As such, the trust agreement must prohibit trust distributions to a beneficiary who is older than the person whose life expectancy is used to calculate the RMD.

If the trusts provide the typical heirs-at-law contingent beneficiary clause, or to a charity, the trust will not be a designated beneficiary. It is important to note that only individuals may be beneficiaries. An estate, a charity or other institution cannot be named. The beneficiaries of the trust must be identifiable. If the remainder beneficiaries cannot involve a class capable of expansion or contraction, then the member with the shortest life expectancy will be used.

Where a trust does not have a designated beneficiary, then the qualified retirement account is treated as having no beneficiary for determining the life expectancy over which to pay the RMDs, and distributions will be distributed over a much shorter period of time, in one of two ways.

First, if the owner died before her RBD, then RMDs are calculated based on the "five year rule" – the account is to be paid out by Dec. 31 of the year containing the fifth anniversary of the owner's death. Second, if the owner died after her RBD, then RMDs are calculated based on the owner's theoretical remaining life expectancy.

In sum, naming trusts (rather than individuals) as beneficiaries of retirement plans is often desirable for a variety of reasons. But, in cases where account owners want to maximize the income distribution period, after their deaths, an appropriate trust form must be utilized.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Frankfurt Kurnit Klein & Selz
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Frankfurt Kurnit Klein & Selz
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions