The See-Through Trust: A Wise Choice for Affluent Californians Over 50

As affluent Californians aged 50 and above, planning for your financial future and legacy is of paramount importance. While Living Trusts are a popular choice for estate planning, there is another powerful tool you should consider: the See-Through Trust, also known as a Retirement Trust. In this article, we’ll explore when a See-Through Trust may be the best option for you, as opposed to a traditional Living Trust.

Understanding the See-Through Trust (Retirement Trust)

A See-Through Trust is a specialized type of trust designed to maximize the benefits of retirement accounts, such as IRAs (Individual Retirement Accounts) and 401(k)s. Unlike a Living Trust, which is a general-purpose estate planning tool, a See-Through Trust focuses specifically on the preservation and efficient transfer of retirement assets to beneficiaries.

In order to use a See-Through Trust, special rules and requirements must be satisfied. These rules are set forth by the Internal Revenue Service (IRS).

Here are some of the special rules to note:

• The Trust must comply with the rules set forth by the state where it is established.
• The Trust must either be irrevocable or will become irrevocable upon the death of the Grantor (its terms cannot be altered).
• The beneficiaries of the Trust must be identifiable as eligible beneficiaries (EDBs).
• The Trust’s Trustee must submit the proper documentation by October 31st of the year following the Grantor’s date of death to the custodian of the retirement account.

When setting up a Trust with a see-through provision, it is critical to ensure that these rules are satisfied, otherwise your beneficiaries will not be eligible to enjoy stretch IRA benefits. 

To qualify as an EDB, the Designated Beneficiary must be the surviving spouse, Children of the account owner under the age of 21 (grandchildren not permitted), Individuals less than 10 years younger than the retirement account owner, individuals with disabilities or individuals with chronic illnesses.

When Is a See-Through Trust the Optimal Choice?

1. Preserving Tax-Deferred Growth: One of the primary advantages of retirement accounts is their tax-deferred growth. However, when left to non-spouse beneficiaries, these accounts can become subject to income taxes upon distribution. A See-Through Trust can be the ideal solution to ensure that tax-deferred growth continues for as long as possible, benefiting both you and your heirs.

2. Control Over Distributions: If you want to exercise greater control over how your retirement assets are distributed to your beneficiaries, a See-Through Trust offers flexibility. You can specify conditions, timing, and purposes for withdrawals, protecting the assets from being spent too quickly or unwisely.

3. Asset Protection: See-Through Trusts can provide an extra layer of asset protection. If your beneficiaries are at risk of lawsuits, divorce, or creditors, the assets held within the trust may be shielded from such claims, preserving your legacy for generations.

4. Special Needs Planning: If you have beneficiaries with special needs, a See-Through Trust can be tailored to provide for their unique financial requirements without jeopardizing government benefits like Medicaid or Supplemental Security Income (SSI).

5. Legacy Planning: For affluent individuals, leaving a substantial legacy is often a priority. A See-Through Trust allows you to create a structured, long-term plan for your retirement assets, ensuring they support your beneficiaries’ financial security for years to come.

6. Avoiding Probate: While retirement accounts typically pass directly to named beneficiaries outside of probate, a See-Through Trust can be a valuable tool for individuals with complex estates. By consolidating retirement assets within the trust, you can streamline the estate settlement process and maintain privacy.

7. Income Tax Planning: A See-Through Trust can be structured to distribute retirement account assets strategically, taking advantage of lower-income tax brackets for beneficiaries, thus minimizing the overall tax burden.

Building Legacies with a Tailored Estate Plan

For affluent Californians aged 50 and above, a See-Through Trust, or Retirement Trust, can be a smart choice to optimize your estate plan. By leveraging the benefits of tax-deferred growth, controlling distributions, providing asset protection, and addressing specific needs of your beneficiaries, a See-Through Trust offers a tailored approach to estate planning that a traditional Living Trust may not provide.

To make an informed decision, consult with an experienced estate planning attorney who specializes in retirement accounts and trusts. They can help you structure a See-Through Trust that aligns with your financial goals and ensures a secure and efficient transfer of your retirement assets to your loved ones. By incorporating a See-Through Trust into your estate plan, you can leave a lasting legacy that reflects your values and financial wisdom.