Should You Name a Trust as Your IRA Beneficiary?

Having a trust does not automatically mean you should name it as the beneficiary of your IRA. The decision depends on what you want to accomplish, who you want to inherit the account, and whether you want those assets to pass outright or remain in trust.

Shawna Theriault, CFP®, CPA, CDFA®, Senior Financial Advisor at Wiser Wealth Management, frequently encounters questions about trusts and IRA beneficiary designations during estate reviews. Her central point is simple: there are situations where naming a trust is appropriate, but having one already in place is not, by itself, a reason to use it this way.

Decide Whether You Want an Outright Inheritance

Before deciding where a trust fits, consider how you want your family to receive the assets. Do you want your spouse or children to inherit outright, or do you want the inheritance held in trust?

Shawna offers a straightforward example: you name your spouse as the primary beneficiary and your children outright as contingent beneficiaries. If that arrangement reflects your intentions, it may be completely appropriate. Wanting your children to receive their inheritance directly does not automatically call for a trust.

The conversation changes when you want the assets to remain in trust for your spouse or children. At that point, the decision involves more than identifying who inherits. It also involves the terms under which you want them to receive the assets.

Consider What You Want to “Control From the Grave”

Shawna uses the phrase “control from the grave” to describe wanting a say in how an inheritance is handled after your death. If you intentionally want to leave assets in trust for a spouse or children, that goal introduces different considerations.

Neither arrangement is presented as the answer for every family. Leaving assets outright may reflect your wishes, while holding them in trust may reflect a different intention. The important question is what you are trying to accomplish.

That purpose should guide the discussion about naming a trust as an IRA beneficiary. The fact that a trust exists does not answer whether it belongs in this particular role.

A Spouse Can Be Primary and a Trust Contingent

Naming a trust does not necessarily mean making it the primary beneficiary. Shawna describes another possible arrangement: naming your spouse as primary beneficiary and your revocable living trust as contingent beneficiary.

In her example, your spouse can treat the IRA as their own if something happens to you. If both of you pass away, the assets can instead be left in trust for your children.

She raises this possibility for families with grown children as well as those with minor children. The intention is to leave the inheritance in trust for the children while naming the spouse first. Whether that fits your situation depends on the arrangement you want for your family.

Ask About See-Through Provisions

The caveat in Shawna’s example is the trust’s language. She specifically emphasizes discussing “see-through” provisions with an attorney.

Those provisions relate to how the trust’s beneficiaries are considered under the applicable retirement account rules. Shawna connects this discussion to whether distributions can be stretched, where possible, under the current tax code.

Her point is that retirement accounts have special rules. Naming a trust requires attention to those rules and the provisions within the trust, rather than assuming an existing document addresses everything. Distribution requirements and potential tax consequences are part of that review.

Bring Your Intentions to an Estate Planning Attorney

Shawna emphasizes that this is an in-depth subject and that she is not an attorney. She recommends working with an estate planning attorney to discuss the dynamics of naming a trust as a beneficiary.

Start that conversation with your intentions: who should inherit, whether they should receive the assets outright, and whether you want the inheritance held in trust. Then discuss the provisions needed to support that arrangement.

Wiser Wealth Management also offers to help you talk through the considerations and guide you toward the appropriate next steps. The starting point remains the same: understand what you want the IRA to accomplish for your family before deciding whether your trust should inherit it.

Schedule a complimentary consultation and discover how our services can help you achieve financial freedom.