Using a see-through trust as a tax-deferred Traditional IRA beneficiary has steadily risen among estate planning attorneys. The benefits of using a trust as the IRA beneficiary includes:
Usually, a single trust is named, and the beneficiaries' share of the assets are spelled out in the trust. One trust, one trustee, nice and simple.
Under the new SECURE Act rules for IRA beneficiaries, all IRA assets must be distributed within 10 years of the year following the date of death of the original IRA owner, with some exemptions for spouses, disabled and minor beneficiaries, and beneficiaries who are less than 10 years younger than the decedent. This dramatically shortens the time that a trust can protect heirs and introduces income tax planning problems for the beneficiaries.
Although there are steps a beneficiary can take to minimize the income tax bite of inheriting an IRA, having the IRA assets co-mingled with a single trust as the beneficiary will severely limit these options. Each individual beneficiary will have different tax planning opportunities and needs. Using a single trust to receive and distribute IRA assets will make income tax planning for the individual beneficiaries nearly impossible.
Here's a simple solution.
Ask your attorney to draw up your trust documents so that upon your death, a pass-through trust is established for each individual heir, and use the beneficiary designation form provided by your IRA custodian to enumerate the share each trust receives.
This way the money is not comingled, and the trustee can work with each end beneficiary to select the times and amount of the distributions that will minimize the income tax bite for that beneficiary. There are a lot of IRA beneficiary trusts out there. Many will need to be updated for the added complexities of the SECURE Act.