Trust as IRA Beneficiary? Avoid these Mistakes

by Prof. Robert Bloink and Prof. William H. Byrnes

A laundry list of reasons to avoid naming a trust as an IRA beneficiary exist. The existence of trust beneficiaries tends to increase the complexities that already exist when the IRA funds pass to its beneficiary upon the original account owner’s death. Naming a trust as beneficiary could even lead to higher future tax liability—because trusts become subject to the highest federal income tax rate at a much lower income level. Still, there are some situations where naming a trust as IRA beneficiary does make sense. Before deciding to name a trust as beneficiary, the client should have a clear understanding of the rules, both with respect to taxes and required minimum distributions (RMDs)—and have a strong rationale for naming a trust as beneficiary.

Rules Governing Trust Beneficiaries: Taxes and RMDs