What Is a See-Through Trust? Definition and Requirements

A see-through trust is a legal arrangement that enables a person to pass retirement assets from an individual retirement account to beneficiaries after his or her death. A properly-constructed trust protects assets from creditors and can parcel out money to beneficiaries according to the wishes of the grantor who set up the trust. This is an important part of any estate plan, as it allows you to ensure your family is taken care of after you’re gone. A financial advisor can help you create an estate plan for you and your family’s future.

Two Types of See-Through Trusts: Conduit Trusts vs. Accumulation Trusts

There are generally two types of see-through trusts: conduit and accumulation trusts. While the two variations ultimately achieve the same goal — distributing retirement assets to beneficiaries — they differ in how the money is doled out and taxed.

As distributions from a grantor’s retirement account are made to a conduit trust, the trustee immediately transfers those assets to the beneficiaries of the trust. An accumulation trust, on the other hand, gives the trustee the authority to pay out or retain distributions within the trust, where the money can continue to grow.

The taxes owed on distributions from conduit and accumulation trusts can also vary. While a conduit beneficiary will pay income tax on the money they receive, distributions from accumulation trusts are typically taxed at higher rates.

For reference, the table below briefly compares the advantages of nine other common types of trusts:

Overview of Different Types of Trusts

Marital Trusts (“A” Trust)	Established by one spouse for the benefit of the other. The surviving spouse gets assets in the trust along with any income. This allows surviving spouses to avoid paying taxes on assets during their lifetimes. But heirs must pay taxes on remaining assets that they inherit.
Bypass Trust (“B” or Credit Shelter Trust)	Established to reduce estate tax for heirs. This is an irrevocable trust where the surviving spouse manages assets but doesn’t inherit. This protects remaining assets for beneficiaries who will inherit remaining assets tax-free.
Charitable Trust	Established to divide assets between specific charities and beneficiaries, or pass on remaining assets to a designated charity.
Generation-Skipping Trust	Established to pass assets to grandchildren while allowing children to potentially access income generated from those assets tax-free.
Life Insurance Trust	This is an irrevocable trust that is designated as the beneficiary of a life insurance policy to avoid estate taxes on policy payouts.
Special Needs Trust	Established to pay for medical care or day-to-day expenses of special needs dependents, which allows them to remain eligible for government benefits.
Spendthrift Trust	This trust structures and limits beneficiary access to assets to avoid misuse. Beneficiaries could access income or interest earned from assets but may be excluded from getting the principal amount.
Testamentary Trust	This trust becomes irrevocable upon the owner’s death, and is established through a last will and testament. Beneficiaries can access assets only at a predetermined time.
Totten Trust	This trust is payable-on-death to the beneficiary named in the account.

How and When Money Is Distributed From See-Through Trusts

See-through trusts and estate planning were in the news after President Trump signed the SECURE Act into law in late 2019. The law altered a provision that allowed non-spouse beneficiaries to “stretch” distributions over the course many years, if not decades.

Before the SECURE Act, required minimum distributions from inherited IRAs were based on a beneficiary’s life expectancy. Spreading distributions out over decades reduced a beneficiary’s tax liability and kept more money in the market for longer.

But the 2019 law requires all assets from the original retirement account to be distributed within 10 years of the original owner’s death. As a result, beneficiaries may face steeper tax bills on money they receive from a see-through trust.

Other Requirements for See-Through Trusts

There are several specific requirements that see-through trusts must meet to become legal entities:

The trust must be valid in the state where it was established.
The trust is irrevocable or become irrevocable following the death of the grantor, meaning the terms of the arrangement cannot be changed.
Beneficiaries are identifiable.
The trustee has provided the custodian of the retirement account with requisite documentation by Oct. 31 of the year that follows the grantor’s death.

Bottom Line

Setting up a see-through trust can be a valuable component of estate planning, ensuring that a person’s retirement assets are passed down to beneficiaries of their choosing. While conduit and accumulation trusts may differ in how and when money is distributed by the trust, they both are required under the 2019 SECURE Act to disburse the grantor’s assets within 10 years of the person’s death.

Tips for Estate Planning

Working with a financial advisor can also help you create a financial plan to reach your estate planning and other goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re concerned about leaving loved ones with the burden of paying taxes on your retirement assets when you’re gone, consider converting your traditional IRA account to a Roth account and assuming the tax bill yourself.