Distributing an IRA to a Trust Beneficiary

You can arrange to distribute your IRA to a trust upon your death. You have many options that affect the timing and payments of the trust proceeds to your beneficiaries. You can design trust arrangements to reduce or eliminate taxes on the beneficiary. Estate planning is a complex topic best addressed with the assistance of estate attorneys, financial planners and tax accountants.

Designated Beneficiary

You can name one or more beneficiaries of the money that passes from your IRA to a trust. If you name multiple beneficiaries to the trust, the oldest one is considered the “designated beneficiary,” or DB. Identifying the DB is important because his or her expected lifespan often determines the period for required minimum distributions. When someone is the beneficiary of an IRA, the amount of the required minimum distributions often depends on how long the Internal Revenue Service expects him to live — it provides tables for this purpose in Publication 590.

Required Minimum Distributions

If you make your spouse the beneficiary of your IRA, the proceeds can be rolled into your spouse’s IRA tax-free upon your death. In this situation, the required minimum distributions don’t begin until your spouse reaches age 70 1/2. If you instead bequeath your IRA to a trust naming several beneficiaries, the trustee uses the age of the DB — who is the oldest beneficiary, not necessarily your wife — to determine speed of distributions for all beneficiaries. For example, suppose you name your brother, age 74, and your spouse, age 62, as equal beneficiaries. The trustee makes required minimum payments based on your brother’s life expectancy. The result is that your spouse receives a speedier payout than if you had made your spouse, not a trust, the beneficiary of your IRA.

See-Through Trusts

You must adopt a “see-through” trust if you wish to name a DB. If all the beneficiaries are individuals, the oldest one is the DB. See-through trusts must be irrevocable on or before your death. If you name trust beneficiaries, you must identify them in the trust documents and the trust must conform to state law. You need not designate any beneficiaries in a see-through trust unless it is also a “conduit” trust, which requires all your trust distributions go to your named beneficiaries. If you’d like the required minimum distributions to depend on each person’s age instead of the age of the oldest, you can create separate accounts within the trust.


You can create a trust by drawing up and signing a trust document, naming a trustee who must also sign the document. You can also set up a trust in your will. Your trustee must provide your beneficiary documents to your IRA custodian no later than October 31 of the year following your death. Trusts come in many different varieties. To choose the appropriate type requires you to match carefully your intentions to the features of a trust. For example, you might adopt a qualified terminable interest property, or QTIP, trust when you wish to provide regular tax-free income to your current spouse and upon his or her death, bequeath the remainder to your children from a previous marriage while excluding any payments to your ex-spouse.

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Copyright 2013 Eric Bank, Freelance Writer

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