Should a Revocable Trust Be the Beneficiary of an IRA? Pros, Cons & Smart Alternatives

Thinking about naming your revocable trust as the beneficiary of your IRA? You’re not alone. As someone who’s helped many clients navigate this complex decision I can tell you it’s rarely a simple yes or no answer.

When I first started helping people plan their estates, I thought that leaving IRAs to individuals directly was always the best option. But as the years have gone by, I’ve seen times when a trust made perfect sense and times when it caused more trouble than it was worth.

Here is everything you need to know about naming a revocable trust as the beneficiary of your IRA: the pros and cons, and when it might (or might not) be the best choice for you.

Yes, Your Revocable Trust CAN Be Your IRA Beneficiary

First things first – yes, you absolutely can name a revocable trust as the beneficiary of your IRA. Despite what some folks believe, trusts are legally allowed to inherit retirement accounts.

When you list your revocable trust on the IRA beneficiary designation form, the trust will inherit those assets upon your death. The assets go directly to the trust (bypassing probate), and your trustee will manage those assets according to your trust’s terms.

But just because you can doesn’t necessarily mean you should.

When Naming a Trust Makes Sense: 6 Compelling Reasons

There are several situations where naming your revocable trust as your IRA’s beneficiary makes good sense:

1. You have minor children or grandchildren. Minors can’t legally own financial accounts directly. A trust makes sure that the money is managed by a responsible trustee until the money is old enough to be spent.

2. You have a beneficiary with special needs. If your heir relies on government benefits like Medicaid or SSI, inheriting assets outright could disqualify them. A properly structured special needs trust preserves their eligibility.

3. You’re in a second marriage with a blended family. A trust can take care of your current spouse and make sure that your children from a previous marriage get their inheritance in the end.

4. Your beneficiary is a spendthrift. If your heir might blow through their inheritance quickly, a trust can regulate distributions and preserve the funds longer.

5. You want multi-generational control. A trust lets you dictate not just who gets your IRA initially, but also who gets whatever remains after that person passes away.

6. You’re concerned about creditor protection. After the Supreme Court’s Clark v. Rameker decision (2014), inherited IRAs don’t have bankruptcy protection. A trust with spendthrift provisions can protect the assets from your beneficiary’s creditors.

The Downsides: Why Many Advisors Recommend Caution

Despite these advantages, there are significant drawbacks to naming a revocable trust as your IRA beneficiary:

1. The SECURE Act Changed Everything

Before 2020, the “stretch IRA” was a powerful planning tool. Beneficiaries could stretch distributions (and tax deferral) over their lifetime. But the SECURE Act eliminated this for most non-spouse beneficiaries, replacing it with a 10-year rule.

Now, most beneficiaries (including trusts) must withdraw the entire IRA balance by the end of the 10th year following the owner’s death. This significantly reduces the tax advantages of using a trust.

2. Trust Tax Rates Are Brutal

This is a big one. Trust income tax brackets are incredibly compressed. In 2025, a trust hits the highest federal tax rate of 37% at just around $15,000 of income! An individual doesn’t reach that rate until about $580,000.

If your trust accumulates IRA distributions (keeps them inside the trust), the tax bite can be massive. For example, a $50,000 IRA distribution to a trust might be taxed almost entirely at the highest rate, plus state taxes where applicable.

3. Spousal Benefits Are Lost

If you name your spouse directly as an IRA beneficiary, they can do a spousal rollover – treating the inherited IRA as their own and potentially delaying RMDs until their own retirement age.

Name a trust instead, and this valuable option is usually lost. The spouse generally gets stuck with beneficiary status and earlier distributions, which is often not optimal.

4. It’s Complex and Costly

Administering a trust with an inherited IRA requires ongoing compliance, tax returns, and management of distributions according to both RMD rules and trust terms. This means potential attorney and accountant fees for years to come.

5. Your Trust Might Not Qualify for “See-Through” Status

For a trust to receive the most favorable tax treatment as an IRA beneficiary, it must qualify as a “see-through trust” by meeting four specific requirements:

• Be valid under state law
• Be irrevocable (or become irrevocable at death)
• Have identifiable beneficiaries (all individuals)
• Provide required documentation to the IRA custodian by October 31 of the year after death

If your trust fails to meet these conditions, the IRA might face accelerated distribution requirements (potentially just 5 years), triggering larger tax bills.

Types of Trusts for IRAs: Conduit vs. Accumulation

If you do decide to name a trust as your IRA beneficiary, you’ll need to choose between two main approaches:

Conduit Trusts

Think of these as a pipe – all IRA distributions must flow directly through to the individual beneficiary immediately. The trustee cannot retain any distributions.

Pros:

• Lower tax rates (individual beneficiary pays tax at their rate)
• Easier to qualify for see-through status
• Can use life expectancy payout for eligible designated beneficiaries

Cons:

• Less asset protection (money goes to beneficiary)
• With the 10-year rule, might dump all assets to beneficiary in year 10

Accumulation Trusts

These trusts can keep IRA distributions within the trust rather than paying them out immediately.

Pros:

• Greater control and asset protection
• Flexible distributions based on beneficiary needs
• Can protect assets from creditors indefinitely

Cons:

• Higher trust tax rates on retained income
• More complex to qualify as see-through trust
• Usually subject to 10-year rule regardless of beneficiary status

Who Should Still Consider a Trust as IRA Beneficiary?

Despite the drawbacks, certain situations still warrant considering a trust:

1. Beneficiaries with special needs or disabilities – Specialized trusts like Applicable Multi-Beneficiary Trusts (AMBTs) can still get life expectancy treatment while protecting benefits eligibility.

2. Minor children – A trust provides management until they’re mature, though you’ll need to weigh tax costs.

3. Beneficiaries with addiction, creditor, or spendthrift issues – The asset protection might outweigh tax costs.

4. Complex family situations – When blended families or second marriages create competing interests, a trust can provide a balanced solution.

Special Case: The Spousal Scenario

If your primary beneficiary is your spouse, naming them directly is usually better than using a trust because:

1. They can roll over the IRA into their own name
2. They can delay RMDs until their own required beginning date
3. They can name their own beneficiaries

However, if your spouse might need assistance managing money or you want to ensure assets eventually go to specific heirs (like children from a previous marriage), a QTIP trust might make sense despite the tax trade-offs.

Smart Alternatives to Consider

Instead of automatically naming your revocable trust, consider these alternatives:

1. Direct beneficiary designations for most cases, especially for responsible adult children who can handle their inheritance.

2. Standalone IRA trusts specifically designed for retirement accounts, rather than your general revocable living trust.

3. Split designations – perhaps naming your spouse directly for their portion and a trust for children’s portions.

4. Roth conversion before death – paying taxes now means beneficiaries (including trusts) can inherit tax-free Roth assets, reducing the tax impact.

5. Charitable Remainder Trusts for those with charitable intent – these can provide income to heirs while ultimately benefiting charity.

My Bottom-Line Recommendation

In most cases, I recommend naming individuals directly as IRA beneficiaries unless there’s a compelling reason not to. The tax advantages and simplicity usually outweigh the benefits of using a trust.

However, if control, protection, and management are your primary concerns, then yes – your revocable trust can be a good beneficiary choice, especially if properly structured with IRA-specific provisions.

The old estate planning adage often applies: “If you trust your heirs to handle the money wisely, you might not need a trust.”

Action Steps If You Do Name Your Trust

If you decide to name your revocable trust as your IRA beneficiary:

1. Work with an experienced estate attorney who understands the interplay between IRAs and trusts.

2. Ensure your trust document includes specific provisions for handling retirement accounts.

3. Be explicit on your beneficiary form – use the trust’s full name and date.

4. Consider whether a conduit or accumulation structure better serves your goals.

5. Inform your trustee about their responsibilities regarding the inherited IRA.

6. Review your plan regularly, especially after major tax law changes.

Remember, estate planning isn’t one-size-fits-all. What works for your neighbor might not work for you. Take the time to understand your options and how they align with your specific goals for your loved ones.