An annuity payout, even under a Minimum Distribution Option, will not always qualify. Often, it is better to fund this trust with assets other than retirement plan accumulations. The reason is that using a trust can take away flexibility to delay the time when distributions must be made from the contracts. Generally, all the retirement assets would have to be distributed within five years. The beneficiaries may not want this accelerated distribution because the amounts are taxable income to them.
Some planners like to ensure that distributions can be delayed as long as possible.
If this trust meets certain requirements, the life expectancies of trust beneficiaries may be used to calculate the period of time over which distributions are made. The trust must be irrevocable no later than the participant s death. The beneficiaries of the trust are identifiable from the trust document. These requirements are relatively easy to follow. If you name such a trust to receive distributions from your contract, you can base the payment schedule on the life of the beneficiary with the shortest life expectancy.