Should You Name a Trust as Your IRA Beneficiary?

Most revocable living trusts were drafted to hold a house, brokerage accounts and bank accounts. An IRA is different because it carries a built-in income tax bill and its own distribution clock. When you name a trust as beneficiary, the trust becomes the inherited IRA's owner, the trustee decides when money comes out, and the trust document decides who is counted as a beneficiary for the payout rules. A trust written before the SECURE Act took effect in 2020 may not work the way the drafting attorney intended.

To get beneficiary treatment at all, a trust must qualify as a see-through trust. Under the regulations it must be valid under state law (Arizona trusts are governed by the Arizona Trust Code), be irrevocable at death or become irrevocable at death, have identifiable beneficiaries, and meet the documentation rules for the plan or custodian. If it fails, the IRA is treated as having no designated beneficiary and must be emptied within five years, or over your remaining life expectancy if you died after your required beginning date. A charity named as a remainder beneficiary of an accumulation trust can cause the same result.

A conduit trust requires the trustee to pass every IRA distribution straight through to the beneficiary. The payout follows the beneficiary's own rules: a surviving spouse can stretch over life expectancy, while an adult child is on the 10-year rule. Under the July 2024 final regulations, if you die on or after your required beginning date, the heir must also take annual RMDs in years one through nine, with those annual RMDs enforced starting in 2025. Income is taxed at the beneficiary's own rates, but by year ten all the money is out of the trust and in the heir's hands, so the protection ends exactly when the account is emptied.

An accumulation trust lets the trustee keep distributions inside the trust. That preserves protection from creditors, divorcing spouses and the beneficiary's own decisions for as long as the trust lasts. The cost is tax. For 2026, trust income retained in the trust hits the 37% federal bracket above $16,000. IRA distributions are not themselves subject to the 3.8% net investment income tax, but they raise the trust's income and can push its other investment income over the same $16,000 threshold. A married couple does not reach 37% until taxable income passes $768,700 in 2026. Arizona taxes the trust at its 2.5% flat rate. A $1.5M IRA that must be emptied within ten years and is kept inside the trust can lose a large share of each distribution to the top bracket.

There are exceptions that change the math. A spouse, a minor child of yours until age 21, a beneficiary who is disabled or chronically ill, and anyone not more than 10 years younger than you are eligible designated beneficiaries. An applicable multi-beneficiary trust for a disabled or chronically ill beneficiary can stretch distributions over that person's life expectancy even as an accumulation trust, which makes it one of the strongest planning tools left after SECURE. The final regulations also let a see-through trust split into separate subtrusts at death, so each beneficiary's share can follow its own schedule when the trust and beneficiary form are written correctly.

For most Singh PWM clients, the answer is to name the spouse directly as primary on pre-tax IRAs, because a spouse can roll the account into their own IRA, delay RMDs and treat it as their own. Routing the IRA through a trust for a surviving spouse usually gives up that rollover. The trust conversation is mainly about the contingent level: what happens when the second spouse dies and the IRA goes to children or grandchildren.

Use a trust when the heir's situation calls for it, not by default. A child receiving disability benefits needs a supplemental needs or applicable multi-beneficiary trust to protect eligibility. A child in a rocky marriage or with creditor exposure may justify an accumulation trust, accepting the trust tax cost in exchange for protection. A responsible adult child in a lower bracket than yours usually does better as a direct beneficiary with the 10-year window to spread income. Many families end up with a mix: direct designations for some heirs and a trust share for one.

The tax cost of an accumulation trust is the best argument for Roth conversions before death. A Roth IRA left to a trust still has to be emptied within 10 years, but qualified distributions are tax-free, so the trustee can keep money inside the trust without the 37% bracket problem. Converting part of a pre-tax IRA in your own 22% or 24% bracket, earmarked for the heir who needs a trust, can be far cheaper than leaving that heir a pre-tax IRA taxed at trust rates later. That is a projection worth running before the trust is drafted, not after.

• Naming the revocable living trust as primary beneficiary of every IRA by default, which can cost a surviving spouse the rollover and lock heirs into trust tax rates.
• Keeping a pre-2020 trust that was built for the old lifetime stretch, so a conduit design now dumps the full IRA on the heir within ten years.
• Using an accumulation trust for a pre-tax IRA without modeling the 37% bracket that starts above $16,000 of retained trust income in 2026.
• Leaving a charity as a remainder beneficiary of an accumulation trust that also receives the IRA, which can disqualify see-through treatment.
• Updating the trust document but never updating the IRA beneficiary form to name the trust or the correct subtrust.
• Ignoring annual RMDs in years one through nine when the owner died after the required beginning date, which the IRS enforces starting in 2025.