SECURE Act 2.0 Meets Minors’ Trusts: Crafting Conduit vs. Accumulation Trusts to Manage the 10-Year Rule Without Tax Surprises
When retirement accounts pass via trust to a minor child, both time and tax planning become very important. The SECURE Act 2.0 modified the treatment of inherited IRAs, and in that changed the taxation of distributions to children, as well as when distributions must be taken.
What Are Conduit and Accumulation Trusts?
A conduit trust requires the trustee to pass all retirement distributions directly to the child. This keeps things simple and qualifies the child for “Eligible Designated Beneficiary” (EDB) status until age 21. During that time, distributions follow the child’s life expectancy.
However, once the child turns 21, the clock starts: All assets must be withdrawn within 10 years, and possibly in annual installments, depending on when the account owner passed away.
An accumulation trust, by contrast, gives the trustee power to hold distributions inside the trust. This protects assets from creditors or early spending but comes with a tax tradeoff.
Distributions retained by the trust are taxed at high rates quickly. Unless the remainder beneficiaries qualify to be ignored under IRS rules, the account may need to be emptied within 10 years of the original owner’s death, even if the child is still a minor.
How to Avoid Tax Surprises and Missed Deadlines
Families often overlook how fast taxes increase. Conduit trusts expose the child’s distributions to the “kiddie tax,” which means those funds may be taxed at the parents’ rate.
On the other hand, accumulation trusts trigger the trust’s compressed income brackets and possible net investment income tax. On top of that, the IRS confirmed that individuals who turn 73 in 2024 must begin required minimum distributions by April 1, 2025, ending the extended grace period previously available under pandemic-era relief rules.
Let’s Help You Make the Right Choice
At O’Brien Law Firm, LLC, we help clients across DeSoto County and Memphis draft minors’ trusts that honor their wishes without triggering avoidable taxes. Whether you’re creating a new estate plan or adjusting an outdated one, we’ll help you apply the SECURE Act 2.0 rules correctly. Call 662-672-7619 or fill out our intake form to get started.
