Tax Tips When Naming a Trust as IRA Beneficiary

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

With all of the significant changes governing required minimum distributions (RMDs) from inherited retirement accounts post-SECURE Act, many clients may have a renewed interest in naming a trust or their estate as their retirement account beneficiaries. After all, trusts are commonly used to simplify a distribution of assets according to a client’s wishes after their death. In reality, life tends to become much more complicated when a trust or estate is named as a retirement account beneficiary—but that doesn’t mean the inherited IRA funds will automatically be subject to the higher tax rates that apply to trusts and estates. Before naming a trust as a client’s IRA beneficiary, it’s critical to understand the detailed rules that will apply with respect to RMDs and tax liability to avoid unpleasant surprises down the road.

How Does a Trust or Estate Impact the Beneficiary Designation?