Good to Know

Once upon a time in a land not so far away, it was possible to defer (stretch) IRA retirement distributions over multiple generations at the death of an IRA owner. That idyllic time was before 2019 and the land in question is these United States of America. During that pre-2020 period, it was not uncommon for sophisticated clients to name an irrevocable Conduit Trust (“Look-Through Trust”) as beneficiary of their IRA.

The benefits of the Conduit Trust strategy at the death of the IRA owner included:

  • Stretching (deferring) distributions to trust beneficiaries over as long as three generations after the IRA owner’s death if the beneficiary were a grandchild,
  • Preventing frivolous withdrawals from Conduit Trust assets by trust beneficiaries,
  • Additional asset protection from creditors for trust assets,
  • Control over the investment management of trust assets, and
  • A disciplined process of withdrawing distributions timely to gain as much deferral as possible while avoiding under-distribution penalties.

An explosion named the SECURE Act of 2019 wrecked the Conduit Trust strategy for most beneficiaries. Effective January 1, 2020, here’s what the SECURE Act did:

  • 100% of the decedent’s IRA balance must be taken no later than December 31 of the tenth year following the year of the decedent’s death for most designated beneficiaries,
  • Only eligible designated beneficiaries such as the IRA account owner’s spouse, disabled individuals, and chronically ill individuals are exempt from the 10-year rule, and
  • The stretch IRA strategy remains alive and well for eligible designated beneficiaries but for no one else for IRA owner deaths occurring on or after January 1, 2020.

Does that mean that a surviving spouse who is one of the beneficiaries of a Conduit Trust is automatically exempt from the Secure Act’s 10-year rule if the IRA account owner dies in 2020? No - if there is even one non-eligible designated beneficiary, e.g., a grandchild or child, the 10-year rule applies to all Conduit Trust beneficiaries.

Clients with IRAs naming a Conduit Trust should contact tax counsel to explore methods to unwind the Conduit Trust strategy.

For example, if the IRA account owner is still alive, it may be possible to defuse the 10-year rule bomb before it detonates inside of a Conduit Trust.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide legal or financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.