A Trust as a beneficiary

[KJames]

A participant passed away in 2020.  The family and employer just notified us in 2022.  One of the beneficiaries is a Trust.  The claim form states that "The Trustee of the Trust must certify whether the underlying trust beneficiaries are designated or non-designated beneficiaries as defined by Section 401(1)(9)(E) of the Code.  The trustee must provide the certification by October 31st of the year immediately following the participant's death."  Since 2 years have passed, what is the impact of the trustee not having met that October 31st certification date?

[Bird]

Under old rules, I think the idea would be that you would have to determine designated benes by Oct 31 of the year following death and start payouts by Dec 31 of that year if the bene(s) wanted a lifetime payment option. I guess the consequence is that would have been under the 5 year rule.

After SECURE, non-spouse benes have to take everything within 10 years (with some exceptions) so I don't think it matters too much.

(All this from memory without checking on new rules so others can chime in and correct me if I'm wrong or missing something.)

 

[KJames]

Thanks Bird.  That makes sense.  I assume that the Trust beneficiary has to be considered a non-designated beneficiary since they missed the certification date.

[Bird]

Yeah but under new rules I don't think it matters.

[bito'money]

If he died before the required beginning date, the 5-year rule applies - not the 10-year rule. 

If he died after the required beginning date, the employee's remaining single life expectancy would be used to determine the annual amount you are required to pay the designated beneficiary, and the entire amount must be depleted by the end of the 10th calendar year following the calendar year of the employee's death. 

[G8Rs]

If death is before the RBD, then the 5 year rule applies. The 10 year rule only applies to non-eligible ‘designated beneficiaries.’ Here you have no designated beneficiaries because a trust isn’t an individual and the deadline was missed for applying the trust look-thru rules. 

[Bird]

9 hours ago, G8Rs said:

The 10 year rule only applies to non-eligible ‘designated beneficiaries.’ Here you have no designated beneficiaries because a trust isn’t an individual and the deadline was missed for applying the trust look-thru rules. 

I believe this is correct - i.e. my previous answer was wrong; it must be paid out over 5 years, not 10. From the IRS (my emphasis):

The 5-year rule generally applies to all beneficiaries if the owner died before 2020. It also applies to beneficiaries who are not individuals (such as a trust) if the owner died after 2019. If the owner died after 2019 and the beneficiary is an individual, see 10-year rule next.