Naming a Trust as Your IRA Beneficiary: Hidden Tax Traps and Smarter Strategies

Can you name a trust as your IRA beneficiary and be done with it? After the SECURE Act, the answer is far more complicated and getting it wrong could cost your family tens of thousands in taxes.

In the past, inheriting an IRA through a trust was a smart estate planning move. Beneficiaries could "stretch" distributions over their lifetime, gaining years of tax-deferred growth. But with the SECURE Act of 2019 and additional changes under SECURE Act 2.0 the rules have tightened dramatically.

Today, if your trust isn't set up correctly, your heirs could be forced to drain the IRA within 10 years, face massive tax bills, and lose out on crucial tax advantages. This is especially true when a trust includes a mix of beneficiaries, such as individuals and charities.

What Makes a Trust "Work" with an IRA?

If you want your trust to qualify as a "see-through" trust under IRS rules, it must meet four specific requirements:

• It must be valid under state law.

• It must become irrevocable at death.

• Its beneficiaries must be clearly identifiable.

• The trust documentation must be delivered to the IRA custodian by October 31 of the year following the account owner's death.

Even if you meet these rules, the type of trust matters:

• Conduit Trusts immediately pass IRA distributions to beneficiaries, often resulting in lower personal income taxes.

• Accumulation Trusts allow distributions to stay inside the trust, but retained income is taxed at steep trust tax rates - hitting 37% with as little as $15,650 of income (2025).

• Age 31 Trusts offer a hybrid approach: control during early years with mandatory distribution by age 31, still receiving more favorable tax treatment.

Each structure has very different tax implications. Choosing the wrong one can cost your heirs dearly.

Example: Why Trust Structure Matters

Imagine Martin, who passed away in 2025 with a $1 million IRA. His trust listed his daughter Emma (age 26) as the primary beneficiary, with Martin’s brother Peter (age 75) and a hospital foundation as contingent beneficiaries.

Because Peter was much older and the hospital was a charity (not a "person" under IRS rules), the IRS required RMDs based on Peter’s shorter life expectancy - not Emma’s. The result? Bigger required withdrawals, higher taxes, and less left for Emma.

Small decisions, big tax consequences. Had Martin structured his trust differently, by naming younger beneficiaries or using a conduit or Age 31 trust, he could have preserved tax efficiency and flexibility.

Smarter Alternatives to Avoid the IRA Trust Tax Trap

Depending on your goals, smarter alternatives include:

• Using a conduit trust to limit tax exposure.

• Choosing only individual beneficiaries close in age to maximize the stretch period.

• Creating an Age 31 trust to balance control with tax efficiency.

• Doing Roth conversions during your lifetime to make post-death trust distributions income-tax free.

If charitable giving is part of your plan, you also need to be careful. Naming a charity directly as a trust beneficiary can eliminate stretch options and create a 5-year distribution requirement for Roth IRAs.

Instead, consider naming a Charitable Remainder Trust (CRT) as the beneficiary. A CRT can receive IRA assets tax-free, pay income to a loved one for life or a term of years, and leave the remainder to charity—all while avoiding immediate taxation.

Final Thoughts

Naming a trust as the beneficiary of your IRA is still a powerful estate planning strategy but it must be done carefully. Without the right structure, you risk triggering unnecessary taxes, reducing flexibility, and missing opportunities to protect your family’s legacy.

Understanding how conduit trusts, accumulation trusts, Roth IRAs, and CRTs interact with today’s rules is critical for anyone serious about optimizing their estate plan.

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