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Should You Name a Trust or Your Children as Beneficiaries of Your IRA?

Writer: Dustin Slade
Dustin Slade
6 days ago
5 min read

Suppose your estate plan leaves everything equally to your three children. You also have a revocable trust and a substantial IRA. It can seem natural to make the IRA payable to the trust. After all, the trust contains the estate plan.


But that is not always the better arrangement.


For many families, naming responsible adult children directly as IRA beneficiaries preserves greater tax and financial flexibility and avoids another layer of administration. A trust can still be the right beneficiary when there is a reason to control the inheritance after death, for example: because a beneficiary is young, has creditor or spending concerns, receives means-tested benefits, or because a blended-family plan requires tighter control over where the property ultimately goes.


The useful question is not simply, “Do I have a trust?” It is, “What would the trust accomplish if I put the IRA behind it?”


Naming Individuals Directly Can Preserve Tax and Financial Flexibility


An IRA normally passes under the beneficiary designation maintained with the custodian, not under the will. If an adult child is named directly, the child receives the inherited IRA and generally recognizes taxable income as distributions are taken from a traditional IRA.


That can create useful flexibility. Most adult children must empty an inherited IRA by the end of the tenth year after the owner's death, but they do not necessarily have to withdraw equal amounts each year. Depending on the applicable required-minimum-distribution rules, a beneficiary may be able to take more in lower-income years and less in higher-income years.


The difference can matter because trusts reach the highest federal income-tax bracket very quickly. In 2026, an estate or trust reaches the 37 percent bracket once taxable income exceeds $16,000; a single individual does not reach that bracket until taxable income exceeds $640,600.


That does not mean an IRA payable to a trust is automatically taxed at trust rates. A trust may receive an income-distribution deduction when income is distributed to beneficiaries, and a conduit trust generally requires retirement-account distributions to pass through to the beneficiary. But an accumulation trust that retains taxable IRA distributions can expose that income to the compressed trust brackets.


There are practical costs as well. A trust may require trustee administration, fiduciary income-tax returns, professional fees, and more complicated coordination with the retirement-account rules.


Those costs may be entirely justified. But they should buy something.


When a Trust Earns Its Complexity


A trust becomes more compelling when outright ownership is itself the problem.


A minor child cannot simply manage a large inherited account. An adult beneficiary may have serious creditor, spending, disability, or benefits concerns. A remarried owner may want a surviving spouse to benefit from property without allowing the spouse to redirect the remainder away from children from an earlier relationship.


In those situations, a trust can impose distribution standards, place management in a trustee, and coordinate the IRA with the broader inheritance plan.


The tradeoff is that the retirement-account rules still apply. A trust does not become an individual beneficiary merely because individuals ultimately benefit from it.


A qualifying “see-through” trust can have certain trust beneficiaries treated as the IRA owner's beneficiaries for required-minimum-distribution purposes. Under the current regulations, the trust generally must be valid under state law, be irrevocable or become irrevocable at the owner's death, and have beneficiaries who are identifiable from the trust instrument.


The regulations distinguish between conduit and accumulation trusts. A conduit trust generally requires IRA distributions received by the trust to be paid onward to the beneficiary. An accumulation trust can retain distributions, which may provide greater continuing control but can also create less favorable trust-level income taxation.


For IRAs, one administrative rule also became simpler under the regulations effective in 2025: the trustee no longer must provide the trust documentation specified in the general retirement-plan rules to the IRA custodian, trustee, or issuer. The substantive requirements for see-through treatment still matter, but the old documentation-delivery requirement does not apply to the IRA itself.


The Ten-Year Rule Does Not Work the Same Way for Every IRA


Most adult children who inherit an IRA are subject to the ten-year rule. But what happens during those ten years depends in part on the type of IRA and when the owner died.


If the owner of a traditional IRA died on or after the required beginning date (generally April 1 of the year after the owner reaches the applicable age) the child generally must take annual distributions during years one through nine and empty the account by the end of year ten. The applicable RMD age is currently 73 for many owners and rises to 75 for younger cohorts. If the traditional IRA owner died before the required beginning date, there generally is no annual distribution requirement during years one through nine; the account simply must be emptied by the end of year ten.


Roth IRAs are different. A Roth IRA owner is treated as having died before the required beginning date regardless of age. For an ordinary adult-child beneficiary subject to the ten-year rule, that generally means there is no annual distribution requirement during years one through nine, only the deadline to empty the account by the end of year ten.


That distinction is another reason to avoid treating every “IRA” as though the inherited-distribution rules work exactly the same way.


Coordinate the Beneficiary Form With the Plan


Estate-planning documents tend to receive most of the attention because they look like legal documents. Beneficiary forms do not. That can be misleading.


A carefully drafted trust cannot control an IRA that is payable directly to someone else. But naming the trust is not automatically an improvement merely because the trust exists.


For a responsible adult beneficiary, direct designation may preserve tax flexibility, reduce administrative friction, and still accomplish the owner's basic objective. A trust earns its place when the control, management, or protection it supplies is worth the additional machinery.


The beneficiary designation and the trust are two parts of the same estate plan. The better choice depends less on whether you have a trust than on whether you need one between the IRA and the person who will inherit it.


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