Must RMD be moved out of Trust

[xz5]

See-through Trust is beneficiary of Traditional IRA/401k, so these will become Trust-Owned Inherited 401k(IRA). The Trust's beneficiaries will claim the up to ten years of 'Distributions' on their own individual 1040s, as their income tax rates will be lower to than the high 1041 Trust Income Tax rates.  Even so, it would be nice if the 'Distributions' can physically remain in the Trust to benefit from its asset protection. Some websites indicate that is possible.  Or must the Trustee also physically move the ten years of 'Distributions' out of the Trust to accounts of its beneficiaries? 

Thank You.

[dmertz]

For the taxable income to be passed through to the beneficiaries to be taxed at the beneficiaries' tax rates, the income must either actually be distributed to the beneficiaries (second-tier distributions) or under the terms of the trust be required to be distributed to the beneficiaries (first-tier distributions).  If the terms of the trust require that the income be distributed and the income is not distributed, that would seem to be a violation of the terms of the trust.  So it seems that to be taxable at the beneficiaries' tax rates the income would need to be distributed.  If the terms of the trust allow the income to be retained in the trust and the income is not distributed, it would be taxable at trust tax rates.

See Schedule B (Form 1041) and its instructions:

https://www.irs.gov/pub/irs-pdf/f1041.pdf

https://www.irs.gov/pub/irs-pdf/i1041.pdf