An IRA owner named his living trust at the beneficiary of his IRA.
He is now deceased. The trustee of his living trust claims that there is a provision within the living trust that permits the trust assets to be moved/credited (not sure of the correct term) to a QTIP trust.

As far as I know, the assets must be reported under the name and tax ID number of the beneficiary(federal law). However, I am not familiar with trust laws. Is it permissible, according to trust law, for one trust to be named the beneficiary and the IRA assets to bypass that trust and go to a another trust that is established though directives of the first trust?

The trustee could be correct.

Most likely the living trust designated as beneficiary is required to be divided at some time after death into two separate trusts, a marital deduction trust and a credit shelter trust. Many trusts contain a provision allowing the trustee to pick and choose which assets to fund the marital trust and which assets to fund the credit shelter trust with. This would allow, at least under state law, the trustee to allocate the IRA proceeds to the marital trust.

You need to check the trust document.

Thanks Weick

I've seen this done many times, and it usually gets screwed up. The QTiP trust is usually not a good vehicle for an IRA. If the intention is to distribute the IRA outright to the spouse, you have to get a ruling to permit it. One could have just named the spouse as beneficiary and avoided the problem.