What is a See-Through Trust?

See-Through Trusts DefinitionSee-Through Trusts Definition

Key Takeaways

  • See-through trusts transfer assets directly to beneficiaries upon the creator's death, allowing faster distribution.
  • The IRS recognizes spouses, minor children, disabled/chronically ill individuals, and those close in age to the account owner as eligible beneficiaries.
  • However, non-spouse beneficiaries must withdraw inherited IRA balances within ten years, leading to higher tax burdens.
  • There are two types of see-through trusts - conduit and accumulation trusts.
  • Despite limitations, see-through trusts are helpful for estate planning as they control distributions and protect assets in specific scenarios.

How Does a See-Through Trust Work?

A see-through trust allows its assets to pass directly to the designated beneficiaries upon the trust creator's death. This type of trust is often used when individuals want to ensure their retirement assets are tax-efficient and can be passed on to their heirs.1

One key aspect of a see-through trust is that it must meet specific criteria outlined by the IRS to qualify for the tax benefits associated with it. These criteria include:

  • The trust must be valid under state law
  • The trust must be irrevocable or become irrevocable upon the death of the trust creator
  • The beneficiaries of the trust must be identifiable
  • The retirement account custodian must be provided with specific trust documentation, such as a copy of the trust agreement.

Choosing a see-through trust as the beneficiary for your retirement account means that the trust will manage the account after you pass away. The people you've decided to benefit from the trust can then withdraw money from the account throughout their lives, which helps the money grow with fewer taxes.

Additionally, a see-through trust allows these assets to skip the probate process. This means the assets can go directly to your chosen beneficiaries without holdup.

Eligible Designated Beneficiaries (EDBs)

An Eligible Designated Beneficiary is a specific category of beneficiaries who can inherit assets like retirement accounts under more favorable tax conditions. This status impacts how quickly they must withdraw money from inherited accounts, such as 401(k)s, IRAs, and other retirement account assets.

The IRS recognizes the following groups as EDBs:

  • Spouses: A surviving spouse can not only stretch the distributions based on their life expectancy but also has the option to roll over the IRA into their name, further deferring taxes.
  • Minor Children of the Account Owner: This only applies to the children of the original retirement account owner until they reach the age of majority (21). Once they reach this age, the account must be fully distributed within ten years.
  • Disabled Individuals: To qualify, the beneficiary must meet specific IRS definitions of disability, ensuring that the condition significantly limits their ability to sustain gainful employment.
  • Chronic Illnesses: Similar to disabled individuals, this category requires a medical certification confirming that the individual cannot perform at least two activities of daily living (like eating, toileting, or dressing) without substantial assistance.
  • Individuals Not More than 10 Years Younger than the Account Owner: This generally covers siblings or close friends who are relatively close in age to the decedent.

To qualify for the EDB stretch provisions, a trust must be a "see-through" trust. This means it must be irrevocable or become irrevocable when the IRA owner dies, have identifiable beneficiaries, and provide any trust documents to the IRA custodian by October 31 following the owner's death. Designing such a trust and selecting EDB beneficiaries can provide long-term benefits and maximize tax deferral.

SECURE Act’s Impact on See-Through Trusts

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in December 2019, brought significant changes to retirement and estate planning, particularly affecting see-through trusts. See-through trusts are commonly used in estate planning to manage and distribute individual retirement account (IRA) assets to beneficiaries after the account owner's death.2

Traditionally, see-through trusts allowed IRA beneficiaries to stretch the distributions over their lifetimes. This "stretch IRA" strategy was favored because it minimized the annual Required Minimum Distributions (RMDs), allowed the untouched funds to continue growing tax-deferred, and potentially reduced the beneficiary's immediate income tax burden.

The SECURE Act introduced a critical change affecting this planning strategy. Under the new rules, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within ten years of the account owner's death. This applies regardless of whether the beneficiary is a person or a see-through trust.

The SECURE Act has implications for See-Through Trusts, such as accelerated distributions, loss of tax-deferred growth, and challenges in estate planning. Individuals using these trusts should reevaluate beneficiary designations, explore alternative trusts, and consider insurance or other financial products to compensate for the increased tax burden.

Overall, see-through trusts are an intelligent choice for managing and passing on your retirement savings. They follow IRS rules and can be set up to meet your specific needs. It's a good idea to work with a financial professional to ensure everything is set up correctly.

What Are the Forms of See-Through Trusts?

See-through trusts can be helpful for estate planning, especially if you have retirement accounts. These trusts allow assets to be distributed over beneficiaries' life expectancy, potentially stretching out tax-deferral benefits. There are two primary forms of see-through trusts that you might consider:

1. Conduit Trusts

A conduit trust is more straightforward in its structure and operation. All distributions received from IRAs or other retirement accounts are passed directly to the trust beneficiaries in this type of trust. These distributions are subject to the beneficiaries' personal income taxation rates.


  • RMDs are calculated based on the oldest beneficiary's life expectancy, helping extend the tax benefits of the inherited IRA.
  • The trust ensures distributions are only given to the intended beneficiaries.
  • This is essential for protecting minors or those who may not handle large sums responsibly.


  • Distributions go directly to beneficiaries, reducing asset protection.
  • Creditors can claim funds in cases of divorce or bankruptcy, which means no protection of your assets from creditors

2. Accumulation Trusts

An accumulation trust provides more control over the distributions from the inherited retirement accounts. Instead of being required to pass all distributions directly to the beneficiaries, the trustee can retain them within the trust.


  • Offers increased asset protection against creditors and legal judgments.
  • Assets can be retained within the trust, enhancing security.
  • Allows the trustee to manage distributions based on beneficiary needs.
  • Ideal for beneficiaries who may not be financially responsible.


  • Accumulation trusts may have less favorable tax treatment.
  • Distributions retained in the trust are taxed at higher trust rates rather than the lower individual rates of beneficiaries.
  • Required Minimum Distributions (RMDs) are based on the oldest beneficiary's life expectancy.
  • The tax advantages of stretching an IRA are reduced due to higher tax rates on undistributed income.

The decision between a conduit and an accumulation trust depends mainly on your goals for asset protection, control over distributions, and tax implications. You need to consult with a financial planner or an estate attorney to carefully weigh the benefits and limitations of each type of trust in the context of your specific financial situation and estate planning objectives.

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When Would You Use a See-Through Trust?

A see-through trust, whether a conduit or an accumulation trust, can be beneficial in various estate planning scenarios. Here are some situations where you might consider using a see-through trust:

  • Control Over Distributions: A see-through trust enables you to control the distribution of inheritance to your beneficiaries by setting conditions such as age milestones or specific uses like education or healthcare.
  • Protecting Benefits from Creditors: Assets within a see-through trust are generally protected from the beneficiaries' creditors, ensuring that even if a beneficiary faces legal judgments or large debts, creditors cannot claim the trust's assets as long as they remain within it.
  • Providing for Minors: If your beneficiaries are minors, a see-through trust can ensure they are financially cared for until they reach adulthood (or even beyond). The trustee you appoint will manage and use the assets in the minor's best interest without court intervention.
  • Avoiding Probate: Like many types of trusts, see-through trusts can help avoid the lengthy and public probate process. This means your beneficiaries can access the life insurance benefits more quickly and privately after your death.
  • Special Needs Planning: If you have a special-needs beneficiary, a see-through trust can be tailored not to jeopardize their eligibility for government assistance programs like Medicaid or Social Security Income. This is crucial because direct inheritance could disqualify them from these benefits.

When considering a see-through trust, it's essential to understand how they can be beneficial in various estate planning scenarios.

See-Through Trust Examples

Scenario 1

Ellen, a parent with two children under 18, opts to set up a see-through trust as the beneficiary of her life insurance policy. She is concerned about her young children directly managing a large sum. She designs the trust for dispensing funds for specific needs like education and healthcare until the children turn 25, when they receive a monthly allowance.

At ages 30 and 35, they receive half of the remaining trust principal. Ellen appoints her brother as the trustee, managing the trust assets and ensuring the funds are used as intended. This arrangement ensures that the life insurance proceeds provide long-term stability and support for her children, protecting the inheritance from potential mismanagement in their youth.

Scenario 2

John Thompson sets up a see-through trust as the beneficiary of his life insurance policies, with his trusted friend Sarah as the trustee. The trust's terms ensure that all three of his children receive their fair share of support without risking large sums of cash being directly provided to them. This helps prevent Mike, who struggles with financial management due to a gambling addiction, from risking his inheritance.

Upon John's death, the life insurance proceeds are paid directly into the trust. Sarah manages the distributions according to the trust's terms, providing Mike with closely controlled regular distributions that cannot be directly accessed to fund his gambling habit.

What Are the Benefits of a See-Through Trust?

Choosing the right financial tools to protect and manage your assets is crucial, and a see-through trust can be a powerful part of your estate planning strategy, especially when paired with life insurance. Here are some of the main benefits of incorporating a see-through trust in your financial planning:

  • Streamlined Retirement Plan Distributions: One significant benefit of a see-through trust is its ability to streamline retirement plan distributions. This type of trust efficiently manages the distribution of assets from retirement accounts such as IRAs or 401(k)s. This can help reduce tax burdens for beneficiaries who inherit these large accounts.
  • Maintaining Control Over Assets: A significant advantage of a see-through trust is that it allows you to control how your assets are distributed after your demise. Establishing a see-through trust lets you specify precisely when and how your beneficiaries will get their inheritance. This involves deciding the timing and quantity of distributions and any conditions or restrictions that must be satisfied before the funds are released.
  • Protection from Creditors and Legal Issues: A see-through trust is crucial to safeguarding your assets against creditors and legal issues. When you transfer your assets into a trust, they no longer form a part of your estate, making them less vulnerable to potential lawsuits or claims from creditors.
  • Eligibility for "Stretch" IRA Benefits: See-through trusts offer the advantage of extending the tax-deferral benefits of an inherited IRA. Beneficiaries can take distributions based on their life expectancies, which can significantly "stretch" the tax-deferral advantages over a more extended period.
  • Ensuring Your Wishes Are Honored: A see-through trust helps ensure that your assets are used as you intend after you’re gone. This is particularly important in complex family situations, such as those involving children from multiple marriages, or when you want to provide for a lifelong dependent, like a disabled child.
  • Facilitating Estate Planning: Incorporating a see-through trust into your estate plan can simplify transferring assets, minimizing hassle and the potential for family disputes. It also allows for more privacy than transferring assets directly, as the details of a trust are not made public like a will.
  • Potential for Minimizing Estate Taxes: A see-through trust can help minimize estate taxes for larger estates. By properly structuring the trust and the distributions, you can reduce the size of your taxable estate, which helps preserve more of your wealth for your beneficiaries.

A see-through trust can be a beneficial tool for estate planning, especially for managing large retirement accounts and protecting and distributing assets according to your wishes. You can consult a financial planner or an estate planning attorney to customize the trust according to your needs and goals.

What Are the Drawbacks of a See-Through Trust?

See-through trusts have potential drawbacks that should be considered:

  • Complexity in Setup and Maintenance: To establish a See-Through Trust, you must meet specific IRS requirements. It involves careful legal and financial structuring, intricate paperwork, and ongoing management. You may need the help of an attorney or a financial advisor to comply with legal standards.
  • Costs: Setting up and maintaining a See-Through Trust can be expensive due to legal fees, higher trustee fees, and ongoing legal and financial consultations.
  • Limited Flexibility: After the grantor's death, modifying the See-Through Trust's terms or beneficiaries can be difficult and time-consuming, making it suitable for specific estate plans where circumstances remain constant.
  • Potential for Increased Taxes: Non-spousal beneficiaries must withdraw funds from retirement accounts within ten years of the account holder's death. This can increase taxable income and push them into higher tax brackets.
  • RMD Complications: RMD calculations for trusts can be complicated. The oldest beneficiary's age determines the distribution period, which can sometimes lead to penalties if miscalculated.
  • Privacy Concerns: Unlike individual beneficiaries, trusts are subject to certain legal disclosures and filings that may become part of the public record. This could expose details about one's estate that would otherwise remain private.

Before deciding to use a See-Through Trust, it is crucial to weigh these potential drawbacks against the benefits. Consulting with a qualified attorney or a financial advisor specializing in estate planning and trusts can provide personalized advice and help you make the best decision for your situation.

Is a See-Through Trust Right for You?

Deciding whether a See-Through Trust is suitable for you depends on several factors:

  1. Beneficiary Control: If you wish to control the distribution of IRA assets after your death, a See-Through Trust can provide specific terms for how beneficiaries receive these assets.
  2. Protection from Creditors: These trusts can offer protection against creditors, legal judgments, or divorcing spouses by restricting direct access to the funds.
  3. Avoidance of Lump Sum Distributions: Instead of beneficiaries receiving all the funds at once and potentially facing high tax bills, the trust allows distributions over the beneficiaries' life expectancy, potentially reducing the income tax burden.
  4. Complexity and Costs: Establishing and maintaining a See-Through Trust can be complex and costly. It requires legal advice to set up correctly and might involve ongoing administrative expenses.
  5. Tax Considerations: The trust must qualify under specific IRS rules to ensure that it doesn't accelerate the tax consequences to the beneficiaries. For example, the trust must be irrevocable upon the owner’s death and the beneficiaries must be identifiable.

If these considerations align with your financial and estate planning goals, a See-Through Trust could be beneficial. However, it is important to consult with a financial advisor or an estate planning attorney to understand how such a trust would work in your specific circumstances and whether it aligns with your estate planning objectives.

Frequently Asked Questions

Is a special needs trust a see-through trust?

A special needs trust is not the same as a see-through trust. While a special needs trust is designed to provide for the care of a person with disabilities without affecting their eligibility for government benefits, a see-through trust is used in retirement planning to distribute assets of an inherited IRA to beneficiaries over their lifetimes. Each serves a different purpose and is governed by specific rules and regulations.

What is the 10-year rule for see-through trusts?

The 10-year rule, also known as the 10-year period for see-through trusts, came into effect with the SECURE Act 2019.3 It stipulates that most non-spouse beneficiaries of an inherited IRA held in a see-through trust must withdraw the entire balance of the IRA within ten years of the original owner's death.

This rule eliminates the option for these beneficiaries to stretch the distributions over their lifetimes, potentially increasing their tax liability as they must take more significant distributions within a shorter timeframe.

What is the difference between a see-through trust vs pass-through trust?

A see-through and pass-through trust are terms often used in estate planning, but they serve different purposes and have distinct characteristics.

  • See-through trust: This trust allows assets to pass directly to beneficiaries, who can take minimum distributions based on their life expectancies. Recent changes in law, like the SECURE Act, have altered how these distributions are stretched over time.
  • Pass-through trust: This trust is not taxed at the trust level. Instead, the income generated by the trust assets is taxed at the beneficiaries' tax rates. This type of trust minimizes the tax impact by passing the tax liability directly to the beneficiaries.

The difference lies in their specific uses and tax implications: see-through trusts specifically manage retirement assets with tax-efficient distributions to beneficiaries. In contrast, pass-through trusts can involve a broader range of assets and are structured to pass income tax obligations to the beneficiaries.

What is the difference between accumulation trust vs discretionary trust?

An accumulation trust focuses on growing the trust's assets by reinvesting income into the principal, which can later be distributed according to predefined rules.

In contrast, a discretionary trust gives trustees the power to decide how and when to distribute assets and income to beneficiaries, offering flexible management based on beneficiaries' changing needs. The main difference lies in the level of trustee discretion and the method of handling income generated by the trust's assets.

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  1. What Makes a See-Through Trust? - Lowthorp Richards. https://www.lrmmt.com/what-makes-a-see-through-trust/.
  2. Inherited IRA Rules & SECURE Act 2.0 Changes. https://www.schwab.com/learn/story/inherited-ira-rules-secure-act-20-changes.
  3. Understanding the 10-Year Rule. https://thelink.ascensus.com/articles/2024/2/14/understanding-the-10-year-rule.

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