Accumulation Trust Clause
(Retirement Benefits)

Summary

This clause may be used in a will or trust to establish an accumulation see-through trust to receive and administer the proceeds of a retirement account upon an account owner's death. It is not specific for any jurisdiction and may be modified for use in any will or trust template, as appropriate. This clause includes practical guidance and drafting notes. This clause establishes an accumulation trust to receive and administer retirement benefit funds upon an account owner's death. By designating a trust as beneficiary of the retirement funds, the individual beneficiary will not receive any lump sum or direct payments from the retirement benefit account after the account owner's death. Rather, the trust would receive all distributions from the retirement benefit fund and the trustee could then accumulate or pay out these funds to the individual beneficiary in accordance with the trust terms. The individual beneficiary of the trust will receive distributions of retirement account proceeds from the trust as a designated beneficiary under IRC § 401(a)(9). See also Treas. Reg. § 1.401(a)(9)-4, Q&A-5. An account owner who wishes to direct the proceeds of a retirement account to an accumulation trust must designate the trust as beneficiary with the account's custodian prior to the account owner's death. Because the trustee of an accumulation trust is able to retain funds paid from the retirement account within the trust, it can be useful in a variety of planning situations including protection from creditors. Additionally, an accumulation trust would be useful in situations where the retirement benefit fund owner desires to benefit an individual beneficiary but would like to avoid that beneficiary receiving lump sum cash payouts directly. This could be for any number of personal reasons, for example, a looming divorce or bankruptcy of a beneficiary, gambling or addiction issues, or if the beneficiary is unable to manage their money. The trustee of an accumulation trust may retain the retirement benefits payouts in trust and distribute them to the trust beneficiary in a more controlled manner pursuant to the trust's terms. By doing so, the beneficiary will be prevented from receiving funds directly from the retirement plan, but the trust will nevertheless still qualify for designated beneficiary treatment pursuant to IRC § 401(a)(9). Note that there are no tax advantages to forming this trust. There may be generation-skipping tax considerations if the assets in this trust are distributable to a grandchild level or more remote descendant. Distributions to individuals at this level may have unintended tax results. Counsel should review the generation-skipping tax rules if individuals at this level will be named as primary or remainder beneficiaries of this trust. See Generation-Skipping Transfer Taxation for additional information. For additional information on estate planning with qualified plans, see Qualified Plans, Deferred Compensation, and Tax Exposure Management.