July 2, 2025

Trust as Beneficiary of Traditional IRA or Retirement Plan

What is it?

A trust is a legal entity that you establish to hold property for the benefit of one or more individuals (the trust beneficiaries). Every trust has one or more trustees charged with the responsibility of (1) managing the trust property, and (2) distributing trust income and/or principal to the trust beneficiaries according to the terms of the trust agreement. (A trustee can be an individual or an institution, such as a bank.) Many different types of trusts can be used to achieve a variety of objectives.

You may be able to name a trust as beneficiary of your IRA or employer-sponsored retirement plan, if the IRA custodian or plan administrator allows such a designation. If the trust meets certain requirements, the beneficiaries of the trust can be treated as the designated beneficiaries (DBs) of the IRA or retirement plan for purposes of calculating the distributions that must be taken following your death (required post-death distributions).

This discussion applies to qualified employer-sponsored retirement plans and traditional IRAs, not to Roth IRAs. Special considerations apply to beneficiary designations for Roth IRAs.

Employer-sponsored qualified plans may require that you designate your spouse as beneficiary, unless your spouse signs a waiver allowing you to name a different beneficiary.

Naming a trust as beneficiary usually will not affect required minimum distributions during your life

Under federal law, you must begin taking annual required minimum distributions (RMDs) from your traditional IRA and most employer-sponsored retirement plans [including 401(k)s, 403(b)s, 457(b)s, SEPs, and SIMPLE plans] by your “required beginning date” — April 1 of the calendar year following the calendar year in which you reach age 73 (age 75 if you reach age 73 after 2032).

With employer-sponsored retirement plans, you can delay your first distribution from your current employer’s plan until April 1 of the calendar year following the calendar year in which you retire if (1) you retire after age 73 (age 75 if you reach age 73 after 2032), (2) you are still participating in the employer’s plan, and (3) you own 5% or less of the employer.

Your choice of beneficiary generally will not affect the calculation of your RMDs during your lifetime. An important exception exists, though, if your spouse is your sole designated beneficiary for the entire distribution year and is more than 10 years younger than you. The same exception may also apply if you name a trust as your sole beneficiary, and the sole beneficiary of the trust is your spouse who is more than 10 years younger than you.

Otherwise, naming a trust as beneficiary to your plan generally does not affect the RMD rules while you are living.

The calculation of RMDs is complex, as are the related tax and estate planning issues. For more information, consult a tax professional or estate planning attorney.

What rules must be followed for a trust beneficiary to qualify as a designated beneficiary?

Before answering this question, it’s important to consider the effects of recent legislation.

The SECURE Act passed at the end of 2019 ushered in a new set of rules establishing what’s known as an eligible designated beneficiary (EDB) of a retirement plan or IRA. The distinction between an EDB and a DB matters significantly in determining the rules surrounding post-death distributions. An EDB is a beneficiary who meets at least one of the following criteria: the account owner’s surviving spouse; the account owner’s child who is under the age of majority (21 — once the child reaches the age of majority, he/she is no longer considered an EDB); a disabled or chronically ill individual, as defined by the IRS; or someone not more than ten years younger than the account owner, such as a close-in-age sibling.

EDBs may be able to spread RMDs over their life expectancy, whereas other DBs must receive distributions within 10 years of the death of the account owner.

Employer-sponsored retirement plans are not required to offer all distribution options; for example, an EDB may be required to follow the 10-year rule. However, both EDBs and DBs may roll eligible retirement plan assets into an inherited IRA, which may offer more options for managing RMDs.

For purposes of the RMD rules, a trust cannot be a DB of an IRA or employer retirement plan even if it is a named beneficiary. However, certain beneficiaries of a trust are treated as beneficiaries of the IRA owner or employee if the trust is a see-through trust.

To be a see-through trust, the trust must meet the following requirements:

The trust beneficiaries must be individuals clearly identifiable (from the trust document) as DBs as of September 30 following the year of your death.

The trust must be valid under state law or would be but for the fact that the trust lacks a trust “corpus” or principal.
The trust must be irrevocable, or (by its terms) become irrevocable upon the death of the IRA owner or plan participant.
The trust document, all amendments, and the list of trust beneficiaries (including contingent and remainder beneficiaries) must be provided to the IRA custodian or plan administrator by October 31 following the year of your death.

There is an exception to the above deadline in cases where the sole beneficiary of the trust is your spouse who is more than 10 years younger than you, and you want to base lifetime RMDs on joint and survivor life expectancy. In this case, trust documentation should be provided before lifetime RMDs begin.

Generally, the regulations state that a beneficiary of a see-through trust is treated as a DB of the employee if the beneficiary could receive retirement account proceeds in the trust that are not contingent upon or delayed until the death of another trust beneficiary who did not die before the employee — e.g., a child of the original account owner can be treated as a DB of the employee if the child does not have to wait for the other parent to die before receiving proceeds. Whether any other see-through trust beneficiary also is treated as DB of the employee depends on whether the trust is a conduit trust or an accumulation trust.

A conduit trust provides that retirement distributions made to the trust will, upon receipt by the trustee, be distributed directly to or for the benefit of specified beneficiaries, who would be DBs (provided receipt of the funds is not contingent upon the death of another beneficiary). An accumulation trust is any see-through trust that is not a conduit trust. A beneficiary of an accumulation trust is treated as a DB of the employee if that beneficiary has a residual interest in retirement assets within the trust that have not been distributed to other beneficiaries.

Certain beneficiaries of a see-through trust are disregarded because they have only minimal or remote interests.

A spouse is not treated as the sole beneficiary if a trust is named as the beneficiary and if any of the IRA or plan funds in the trust can be accumulated during the surviving spouse’s lifetime for the benefit of remainder beneficiaries; therefore, certain special RMD rules for spouses would not be available.

The choice of conduit versus accumulation trust can have a significant impact on the eventual tax obligation assessed on the assets.

Separate application of the RMD rules to the separate interests of beneficiaries of a see-through trust is permitted if the terms of the trust provide that it is to be divided immediately upon the death of the employee into separate shares for one or more trust beneficiaries.

An applicable multi-beneficiary trust is a see-through trust with more than one beneficiary, all of whom are DBs, and at least one of whom is an EDB who is disabled or chronically ill.

An applicable multi-beneficiary trust must (1) identify one or more individuals who are disabled or chronically ill and who are entitled to benefits during their lifetime, and (2) provide that no beneficiary who is not a disabled or chronically ill EDB can have any interest in such a trust while any disabled or chronically ill EDB is alive. In an applicable multi-beneficiary trust, all disabled or chronically ill EDBs are treated as EDBs without regard to whether any of the other trust beneficiaries are not EDBs.

A trust with a charity as a beneficiary is generally treated as if there is no designated beneficiary (because a charity is not an individual). However, in an applicable multi-beneficiary trust, a charity can be entitled to distributions after the death of the disabled or chronically ill beneficiary without violating this rule.

Distributions for trust beneficiaries

According to the regulations, in general, a see-through trust with one beneficiary is treated the same as if the benefits were payable directly to the beneficiary. A see-through trust with multiple individual beneficiaries, not all of whom are EDBs, is generally treated like a DB; therefore, the entire account would need to be distributed 10 years after the account owner’s death. If the account owner died on or after the required beginning date, annual RMDs during the 10-year period would be based on the oldest beneficiary’s life expectancy.

There are three types of see-through trusts that can receive EDB treatment: a trust where all beneficiaries are EDBs, a trust with a minor child EDB, and a trust for disabled or chronically ill EDBs (see the discussion of applicable multi-beneficiary trust under “What rules must be followed…?” above).

A see-through trust with beneficiaries that are all EDBs is generally treated like an EDB. Annual RMDs are generally based on the life expectancy of the oldest EDB. The entire account would generally need to be distributed 10 years after the oldest EDB dies. Similarly, an applicable multi-beneficiary trust uses the life expectancy of the oldest disabled or chronically ill EDB, and the entire account must be distributed 10 years after the death of the last of the disabled or chronically ill EDBs.

Special rules apply where one or more of the trust beneficiaries is a minor child EDB. Annual RMDs would be based on the life expectancy of the oldest DB. In general, the entire account does not need to be distributed until at least 10 years after the youngest minor child EDB reaches age 21 (or, if earlier, 10 years after the last of those minor children dies).

All DBs of the trust are considered in determining the oldest DB.

You should consult an estate planning attorney regarding the above requirements, as mistakes may prove costly.

Advantages of naming a trust as beneficiary

A trust beneficiary can be treated as the IRA or retirement plan beneficiary

As mentioned, if you name a trust as beneficiary of your IRA or plan and meet certain requirements, the individuals named as beneficiaries of the trust can be treated as the DBs (or EDBs, if eligible) of the IRA or plan. This is significant because it typically allows you to provide the individual trust beneficiaries with the same post-death options they would have if you named them directly as the IRA or plan beneficiaries.

One situation in which naming a trust as the IRA or plan beneficiary will limit post-death distribution options is when you want to provide for your surviving spouse. In this case, naming your spouse directly as IRA or plan beneficiary is generally a better strategy for income tax planning purposes (but maybe not death tax planning purposes) than naming a trust that has your spouse as beneficiary.

If the life expectancy method is used, post-death distributions must begin no later than the December 31 following the year of your death, and generally must be based on the single life expectancy of the oldest DB (or EDB, in some cases) of the trust (i.e., the one with the shortest life expectancy).

If the trust you have designated as IRA or plan beneficiary is not properly designed, you may be treated as if you died without a DB. That would likely limit the payout period for post-death distributions, in many cases considerably.

For decedents dying after 2019, the life expectancy method can only be used if the DB is an EDB. An EDB is a DB who is the spouse or a minor child of the IRA owner or plan participant, a disabled or chronically ill individual, or other individual who is not more than ten years younger than the IRA owner or plan participant (such as a close-in-age sibling). Special rules apply in the case of certain trusts for disabled or chronically ill beneficiaries.

Naming a trust can allow you to retain control after your death

When you designate one or more individuals directly as beneficiaries of your IRA or retirement plan, after your death, those individuals are generally free to do with the inherited funds as they please. This could mean, among other things, withdrawing all of the funds in one lump sum and incurring a large income tax bill. However, you can retain some control over the funds after your death by setting up a trust for the benefit of your intended beneficiaries, and then naming that trust directly as beneficiary of your IRA or plan. Your intended beneficiaries will still receive the IRA or plan funds after you die, but generally according to your wishes as spelled out in the trust document (within the limits of the required distribution schedules). This often gives you the ability to have at least some control over the timing and amounts of distributions, preventing your children or other trust beneficiaries from immediately squandering the funds.

In some cases, income that is retained in a trust and not paid out to beneficiaries may be heavily taxed for income tax purposes.

Assets held in a trust may be protected from creditors

IRA or retirement plan funds left to a properly drafted trust for the benefit of your intended beneficiaries may enjoy considerable protection against their creditors, at least as long as those funds remain in the trust. In fact, leaving retirement assets to your beneficiaries via a trust will often provide greater creditor protection than if you left those assets directly to your beneficiaries. This can be a major advantage if one or more of your beneficiaries has substantial unsecured debts. Consult an estate planning attorney for further details, and to find out what type of trust will provide the most creditor protection.

A QTIP trust for your spouse may be beneficial

A qualified terminable interest property (QTIP) trust is a type of marital trust that allows you to provide for your surviving spouse during their lifetime, defer estate tax at your death, and control who the ultimate beneficiaries will be. If you name this type of trust as the beneficiary of some or all of your retirement assets, your spouse will receive distributions during their lifetime and, to the extent the entire account is not consumed, the balance may be left to your children and/or other beneficiaries. Retirement plan assets left to this type of trust are not subject to estate tax at your death, but the remaining assets will be included in your spouse’s taxable estate at their death. Consult an estate planning attorney for further details.

To use a QTIP, your spouse must be a U.S. citizen. If your spouse is not a U.S. citizen, a special type of trust known as a qualified domestic trust (QDOT) may be appropriate. With a QDOT, as with a QTIP, all trust income is paid to your surviving spouse during their lifetime. However, unlike a QTIP where remaining trust assets are included in the surviving spouse’s estate at their death for estate tax purposes, the assets will be taxed in the first spouse’s estate at the surviving spouse’s death or upon the earlier withdrawal of principal. Consult an estate planning attorney for further details.

Naming a trust for the benefit of your spouse may limit post-death options.

A credit shelter trust may be beneficial

In some cases, you may want to name a certain kind of estate-tax-saving trust as the beneficiary of some or all of your IRA or retirement plan assets. This type of trust goes under many names, including “credit shelter trust,” “B trust,” “bypass trust,” and “exemption trust.” The size of the trust is usually tied to the size of the federal applicable exclusion amount.

The purpose of this type of trust generally is to allow your spouse (or other trust beneficiaries) to benefit from the assets placed in the trust, but to exclude those assets from estate tax, not only at your death, but also at your surviving spouse’s death. Consult an estate planning attorney for further details.

If too much or all of your estate goes into this type of trust under the increasing applicable exclusion amount, then your surviving spouse may not be adequately provided for, unless you have specific provisions added to the trust document.

Since this type of trust may be forever exempt from estate tax, you may not want to diminish its value by funding it with retirement assets that are subject to income tax. If possible, other assets might be more appropriate sources of funding for the trust.

This may not be the proper strategy for some married couples. A tax law passed in 2001 replaced the state death credit with a deduction starting in 2005. As a result, many of the states that imposed a death tax equal to the credit decoupled their tax systems, imposing a stand-alone death tax. Many of these states allow an exemption that is less than the federal exemption. This may leave some couples vulnerable to higher state death taxation. See your financial professional for more information.

In 2011 and later years, the unused basic exclusion amount of a deceased spouse is portable and can be used by the surviving spouse. Portability of the exclusion may provide some protection against wasting of the exclusion of the first spouse to die and reduce the need for a credit shelter or bypass trust.

Disadvantages of naming a trust as beneficiary

Naming a trust for the benefit of your spouse may limit post-death options

If you want to provide for your spouse after your death, you can set up a trust for the benefit of your spouse, and then name that trust directly as beneficiary of your IRA or retirement plan. Your spouse, as beneficiary of the trust, could then be considered an EDB of the IRA or plan (as long as all of the above requirements are met). However, think carefully and seek professional advice before making this beneficiary choice. The use of a trust may limit or rule out certain post-death options that would otherwise be available to your spouse if they were named directly as beneficiary of the IRA or plan.

For example, under the RMD rules, your spouse would lose the right to treat an inherited IRA as their own account (even if your spouse were the sole beneficiary of the trust). If you want your spouse to ultimately receive your IRA or plan assets, the best way to achieve this goal is typically to directly name your spouse as beneficiary of those assets (unless there are specific reasons for using a trust instead). Naming your spouse as primary beneficiary provides greater options and maximum flexibility in terms of post-death distribution planning.

Nonspouse beneficiaries cannot roll over inherited funds to their own IRA or plan. However, a nonspouse beneficiary can make a direct rollover of certain death benefits from an employer-sponsored retirement plan to an inherited IRA (traditional or Roth).

Trusts can be complicated and costly to set up

Setting up a trust can be expensive, and maintaining it from year to year can be burdensome and complicated. So, the cost of establishing the trust and the effort involved in properly administering the trust should be weighed against the perceived advantages of using a trust as an IRA or retirement plan beneficiary. In addition, remember that if the trust is not properly drafted, you may be treated as if you died without a DB for your IRA or plan. That would likely shorten the payout period for required post-death distributions. Provisions of your trust need to take into account laws regarding the payout of trust income in connection with estate tax planning issues. Also, funding a trust that is exempt from death tax (e.g., credit shelter trust) with assets that have a built-in income tax liability reduces the net amount really in this trust.

Also, depending on the purpose of the trust and other factors, a trust may not be worthwhile. Depending on the size of your estate and the amount of the estate tax exemption in the year of your death, using a trust for estate tax purposes may or may not make sense. Consult an estate planning attorney for further guidance.

For more information on distributions for beneficiaries of a Trust, see the IRS final rules for Required Minimum Distributions published in the Federal Register on July 19, 2024.

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