accumulation trust

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Accumulation trust is a type of see-through trust that allows withdrawals to be made or kept within the trust. See-through trusts are established by people with individual retirement accounts (IRA) so that the assets in their IRAs are transferred into a trust should they die before withdrawing all of the assets. This allows the trustor to specify how the beneficiaries receive the money while allowing the assets to still keep the tax-deferral benefits of the IRA. To establish the trust, the person must meet all the requirements for a legal trust, name specific beneficiaries, make the trust be irrevocable when they die, and provide the documentation to the custodian of the IRA. The trust is subject to required minimum distributions (RMD) as given in the SECURE Act of 2020. Beneficiaries of an inherited IRA trust must distribute all of the assets within 10 years, and they must distribute at least a tenth of their share each year. There are a couple exceptions for spouses, disabled, minors, and other individuals that may be able to extend the distribution period for much longer. The reason for the 10 year distribution period imposed by the SECURE Act is to keep the beneficiaries from abusing the tax-deferral of the IRA. For accumulation trusts, the RMDs can be reinvested in the trust, but the profits they produce will be taxed. This is in contrast to conduit see-through trusts that require the beneficiaries be paid their distributions. 

[Last updated in December of 2021 by the Wex Definitions Team]