With an accumulation trust, the trustee has broad discretionary authority to either pay out or accumulate retirement plan distributions during the lifetime of the primary beneficiary for possible distribution to another beneficiary, at a later date. However, after SECURE, even an accumulation trust isn’t the perfect solution. It has its tradeoffs.
An accumulation trust may resolve someone's concerns about the beneficiary receiving too much too quickly, but at a prohibitively expensive income tax hit. SECURE requires that all retirement benefits be paid to the accumulation trust within 10 years, following the year of the death. To the extent the trustee accumulates retirement plan benefits in the trust, they will be taxed at the highest trust rates due to its compressed tax brackets.
Yet, a strategy that combines an accumulation trust with the purchase of a life insurance policy may be the right solution to help offset the accelerated tax liability with an income-tax free death benefit at the death.