Changing Participant's Account to a Trust

[Guest andmik]

Hello,

I have never seen this question in this form before.

Participant wants to change his own account to a Trust. I suppose he has established a trust for all his assets and wants to change his SSN to the FID issued for the trust, and then use the name of the trust.

I know that a participant can designate a trust as his beneficiary, but changing the participant's account itself to a trust is not allowed, correct?

It seems to run afoul on two counts -

(1) the idea that he has deferred compensation and that he will owe ordinary income tax based on his individual tax situation for the year(s) of distribution. Changing to a trust would very possibly avoid or change that ordinary income tax treatment.

(2) It seems that it would be a prohibition under the Anti-Alientation clauses of 401(a) of IRC and 206(d) of ERISA, but want to make sure I am on the right track here as well. If the law allowed him to change his account to a trust, and he was the beneficiary, he could not be the sole trustee and that could potentially allow a change to a beneficiary without his authorization, thus alienating his account from him.

Thanks in advance for any feedback.

andmik

[QDROphile]

The account could be held in a separate trust that is qualified under section 501(a) as a trust for assets of the plan. But I doubt that there would be any advantage to such an arrangement if done and maintained properly. Otherwise, the only way to get funds out of the plan's trust (where they are now) would be via distribution, if the participant is eligible, or a spin off of a portion of the plan.

If what is proposed is simply a change of identity of the account beneficiary, no. You are correct that it would be an impermissible transfer of ownership.