Planning for IRA Beneficiaries and Trusts: FAQ

The primary purpose of your retirement funds is to enhance your golden years. Yet, you may also want them to support your loved ones beyond your lifetime. For this goal, you’ll need to know how to make the most of your IRA assets.

Even if you’re years away from retiring, start planning early to pass down an inherited IRA. You can prepare for how you’ll withdraw money to avoid penalties and minimize tax liability. You can also choose your beneficiaries when evaluating your estate plan.

This guide explains frequently asked questions about IRAs, beneficiaries, trusts, and taxes. You can also meet with an estate planning lawyer or retirement benefits attorney to understand your options.

See answers to the questions below:

• Can my family inherit my IRA?
• What is a designated beneficiary of an IRA?
• How should I plan for IRA taxes?
• How do IRA distributions work after the account owner’s death?
• Can I change how my retirement plan will be taxed when I die?
• Can I donate my IRA?
• Can an IRA be titled in the name of a living trust?
• Can a living trust be the beneficiary of an IRA?
• When do I need a lawyer for IRA planning?

Can my family inherit my IRA?

Yes. You have many options to determine what will happen to your retirement accounts. A simple option is to designate a beneficiary on the account. Yet, you may want to consider whether other financial planning options provide better advantages.

Even if you have other savings and benefits to sustain your retirement, you probably can’t leave your SIMPLE, SEP, or traditional IRA untouched forever. Participants must make required minimum distributions (RMDs) starting at age 73. This age is known as the “required beginning date.” You may want to evaluate how RMDs will affect your family’s future inheritance. In contrast, Roth IRAs don’t impose RMDs during your lifetime.

You could consider using these mandatory withdrawals to buy certain immediate-pay annuities. These annuities guarantee to you (and perhaps a designated beneficiary) an amount of money for the rest of your life. This can still meet the minimum distribution requirements.

What is a designated beneficiary of an IRA?

A designated beneficiary is someone who will inherit the account after the IRA owner’s death. You must explicitly specify your beneficiaries. Usually, the institution where you keep your IRA will have an online form or process you can use.

You can name young children as beneficiaries, but this creates legal complications regarding access to funds before age 18 or 21 (depending on state law). Without proper legal structures, such as a trust, a court-appointed guardian or conservator may be required to manage the inheritance. An estate planning attorney can help you establish appropriate trusts to avoid court involvement and ensure funds are managed according to your wishes.

It’s important to designate your beneficiaries according to your wishes. Your IRA beneficiary designation will take precedence over anyone else you name to inherit the account in your will. You can always change your designated beneficiary.

Consider the following:

• Naming your estate as the beneficiary, whether intentionally or by failing to name anyone, eliminates favorable tax deferral options and forces accelerated distributions.
• Failure to update beneficiary designations after major life events (marriage, divorce, birth of children) can result in assets passing to unintended recipients — even if your will states otherwise.
• IRAs or similar retirement plans don’t require probate if you complete the IRA beneficiary designation. If the plan fails to name a beneficiary, probate will probably be required.

How should I plan for IRA taxes?

The first factor to consider is the type of IRA account you have. The type will affect whether you have to pay taxes on your withdrawals during retirement.

In a Roth IRA, income tax applies to each contribution you make. Your withdrawals in retirement are not subject to income tax.

In a traditional IRA, your savings and growth are tax-deferred. You don’t pay income tax on the money you contribute. Instead, income tax will apply to the principal and accrued income when you withdraw funds.

An additional tax bill is due in the following circumstances:

• Early withdrawals before age 59 1/2 will trigger a 10% penalty.
• Excess contributions to a retirement plan trigger a 6% penalty.
• Failure to withdraw your RMD before the deadline incurs a 25% penalty. Correcting the missed RMD within two years can lower this penalty to 10%. If you don’t finish your RMD in your final year of life, the IRS will waive this penalty if your beneficiaries withdraw them within the following year.

The money in an IRA may be a substantial part of your net assets. Your IRAs, Keogh Plans, pension, and profit-sharing benefits are included in your gross estate. They help determine your estate tax liability.

If you die with an undistributed plan, that money will be taxable income. It may be subject to estate tax and possibly generation-skipping tax. These taxes can substantially lower the amount passing to your children and grandchildren.

How do IRA distributions work after the account owner’s death?

The distribution options and rules depend on the beneficiary’s relationship to you. They also depend on whether the account owner dies before or after their required beginning date. This factor affects how long the beneficiary has to receive the money. Different types of beneficiaries may be subject to a 5-year rule or a 10-year rule. These distribution rules mean the account must be empty by the end of the 5th or 10th year after the owner’s death, respectively.

The main types of individual beneficiaries include:

• The participant’s spouse
• Non-spouse beneficiaries, such as adult children
• Eligible designated beneficiaries, such as minor children or family members with disabilities

Your surviving spouse may take a lump-sum distribution and roll over any amount to your spouse’s own IRA. Or, they can treat the IRA as their own to postpone any distributions and defer income tax until their own required beginning date.

Even a Roth IRA will have RMDs once it’s inherited. The RMDs are based on IRS tables of life expectancy. These minimum withdrawals vary depending on the age of your spouse or beneficiary.

Can I change how my retirement plan will be taxed when I die?

Yes, but the tax rules can become very complex, and missteps can trigger unintended tax consequences. The strategies outlined below require careful coordination between your retirement accounts, life insurance policies, and estate plan. An estate planning attorney can help you execute these strategies correctly and ensure they align with current tax law.

One strategy an account holder might use is a trust. A trust is an account that contains assets for estate planning purposes. The sections below offer more information about using trusts with an IRA.

Another possible strategy involves using insurance to convert taxable funds into a tax-free benefit as follows:

• Maximizing withdrawals from a traditional IRA
• Using funds to pay premiums on an appropriate life insurance policy
• Creating an irrevocable life insurance trust for a beneficiary
• Gaining the estate tax benefits of the life insurance transfer upon death

Can I donate my IRA?

Yes. You have a few options to donate the funds in your IRA during or after your lifetime. Charities can generally receive IRA funds tax-free.

If you have reached your IRA’s required beginning date, one option is to make qualified charitable distributions (QCDs). The money flows directly from your IRA to the eligible charity of your choice. These donations gain the benefit of tax exemption, even if they’re from a traditional IRA. They also count toward your RMDs.

Another option is to create a charitable trust for tax-exempt gifting. Transferring your IRA to a qualified charity can bypass both income and estate taxes. With a charitable remainder trust, the charity manages the trust assets and uses them to pay you during life (or your beneficiary for a set term). Upon death or the end of the term, the charity will keep the remaining funds. This option offers multiple tax advantages if you plan to donate.

Can an IRA be titled in the name of a living trust?

No, the IRA is owned by the plan participant. Only individuals can establish and maintain an IRA. A living trust isn’t a person and therefore can’t own an IRA.

Can a living trust be the beneficiary of an IRA?

Most likely, yes. Generally, a designated beneficiary must be an individual. But sometimes, the trust beneficiary can be treated as the individual IRA beneficiary. This is known as a “see-through trust.” The IRS will look past the trust itself to “see” an individual who can inherit the account.

There are a few requirements for this to work, including:

• The trust must be valid under state law.
• The trust must be irrevocable or will become irrevocable upon the participant’s death.
• The trust documents identify beneficiaries.
• After the participant’s death, the plan administrator must receive a copy of the trust instrument by the deadline.

Some people choose a qualified terminable interest property (QTIP) trust to leave their assets to their spouse. This is a common example of a trust that can achieve the see-through status.

There are two types of see-through trusts. A conduit trust would pass retirement savings to the beneficiary directly. An accumulation trust would let some of the retirement assets stay within the trust. Each type of trust has pros and cons to consider.

But seek legal advice first. Given the strict technical requirements and potential for disqualification, consult an estate planning attorney before naming a trust as your IRA beneficiary. Even minor errors in trust documentation or timing can result in unfavorable tax treatment and loss of stretch distribution options. A lawyer can help you navigate tax consequences, new rules, and any specific interests you may have.

When do I need a lawyer for IRA planning?

Below are common reasons to speak with an attorney about your IRA and other retirement plans:

• You want to name a trust as a beneficiary of your retirement account.
• Your estate will likely be subject to federal estate tax (includes $15 million+ estates in 2026).
• Your family circumstances may lead to competing beneficiary interests, such as in a blended family.
• You have one or more beneficiaries with special needs, which requires carefully structured planning.
• Your beneficiaries live across multiple states or countries, which introduces interstate and international estate planning concerns.
• You own a business and manage a qualified retirement plan, or you plan to exit your business to retire.

A lawyer can help you address many topics during retirement planning. They can help you evaluate all your options as you decide how to save for supporting yourself and your loved ones. They can also watch out for mistakes that could have high costs or other unintended results.

Get Legal Help To Protect Your Assets

Preserve your financial security during your lifetime and beyond. Each situation may require different planning strategies. Carefully examine yours with a professional who has expertise in this area of the law. See FindLaw’s directory of estate planning attorneys and retirement lawyers to find a professional near you.