IRAs and Trusts: What Successor Trustees Must Know

One of the first things a new successor trustee discovers: IRAs usually aren't in the trust. They pass a different way. But when a trust is named as the IRA beneficiary — intentionally or by mistake — the rules are among the most complex in all of retirement planning.

Step one: Does the IRA actually pass through the trust?

As successor trustee, your first job with any IRA you find in the estate is to determine who the beneficiary of record is. Contact each IRA custodian and ask for a copy of the most recent beneficiary designation on file.

The most common outcomes:

• A named individual (you, your siblings) is the beneficiary. The IRA does not pass through the trust at all. Each named individual inherits their share directly and opens an "inherited IRA" in their own name. Your duties as trustee don't apply to this IRA — the beneficiaries deal with it themselves.
• The trust is named as beneficiary. The IRA is payable to the trust. This is where trustee responsibilities become complex.
• The estate is named, or no beneficiary exists. The IRA passes through the probate estate. This is generally the worst outcome — the 10-year rule applies and there is no stretch, even for a surviving spouse.
• A deceased individual is still listed. IRA custodians handle this differently. The IRA may fall back to contingent beneficiaries, or to the estate. Get legal counsel.

When the trust is named as IRA beneficiary

Parents sometimes name their revocable living trust as the IRA beneficiary deliberately — usually to control distributions to minor grandchildren, a child with special needs, or a spendthrift beneficiary. Sometimes it happens accidentally when the trust was named as a backup and the primary beneficiary predeceased the parent. Either way, the trustee now holds an inherited IRA on behalf of the trust's beneficiaries, and the rules are specific.

The see-through trust rules: qualifying for designated beneficiary status

The IRS extends the most favorable treatment to trusts that qualify as a "see-through" trust (also called a "look-through" trust). To qualify, four requirements must be met by October 31 of the year following the IRA owner's death:¹

1. The trust must be valid under state law.
2. The trust must be irrevocable at the IRA owner's death (or become irrevocable at death).
3. The trust beneficiaries must be identifiable from the trust document.
4. A copy of the trust document (or a certification of trust plus beneficiary list) must be provided to the IRA custodian.

If the trust qualifies as a see-through trust, the IRS looks through the trust to its individual beneficiaries to determine the applicable distribution rules. If it doesn't qualify, the IRA is treated as having no designated beneficiary — and the 5-year rule applies (or distributions based on the decedent's remaining life expectancy if they had already started RMDs). This is a critical deadline. Miss it and the most favorable treatment is lost permanently.

Conduit trust vs. accumulation trust: the most important distinction in this area

See-through trusts come in two types, and which type your trust is determines nearly everything about how distributions work and how taxes are calculated.

Conduit trust

A conduit trust is written to require that all RMDs (and any other distributions) received from the IRA be paid out immediately to the trust's current beneficiaries — the trust cannot hold onto them.²

• Beneficiaries receive the distributions and pay income tax at their individual rates.
• No income accumulates in the trust at the compressed 37%-top-bracket rates.
• The beneficiaries' life expectancies can be used to determine the distribution period (for eligible designated beneficiaries).
• The downside: the trustee cannot exercise discretion to shield a spendthrift beneficiary from a large cash payout. The trust document forces the flow-through.

Accumulation trust

An accumulation trust allows the trustee to receive RMDs from the IRA and decide whether to distribute the cash to beneficiaries or hold it in the trust.²

• Retained distributions are taxed at trust rates — which reach 37% federal on income over just $16,000 in 2026.
• The trustee has full discretion: useful for protecting a spendthrift, a beneficiary with creditor issues, or a minor.
• The 10-year rule applies — the entire IRA must be distributed by the end of the 10th year after the original owner's death.
• Tax drag from accumulated distributions can be severe if the trust holds the cash at compressed rates for years.

The 10-year rule for trust beneficiaries

Under the SECURE Act (2020), most non-spouse beneficiaries who inherit an IRA must distribute the entire balance within 10 years of the original owner's death.³ This applies to trusts named as beneficiaries in the same way. The 10 years run from the calendar year of the IRA owner's death — so if your parent died in 2024, the IRA must be fully distributed by December 31, 2034.

The 10-year rule applies to trusts whose beneficiaries are "non-eligible designated beneficiaries" — primarily adult children and most trusts for adult children. Eligible designated beneficiaries (surviving spouses, disabled individuals, chronically ill individuals, minor children, and individuals not more than 10 years younger than the deceased) have different, more favorable rules. If a trust's beneficiaries include any non-eligible designated beneficiaries, the 10-year rule governs.

Annual RMDs during the 10-year period: the rule most trustees miss

Here is where many successor trustees get into trouble. The 10-year rule does not simply mean "take everything out by year 10 in one lump." Whether annual distributions are also required during years 1–9 depends on whether the original IRA owner had reached their required beginning date (RBD).⁴

The required beginning date is April 1 of the year following the year the account owner turns age 73 (for those born in 1951–1959) or age 75 (for those born in 1960 or later).⁵

The IRS finalized these annual RMD rules in Treasury Decision 10001 (July 2024) after years of confusion following the SECURE Act.⁴ Prior IRS guidance had waived annual RMDs in 2021–2024 for those inherited IRAs; beginning in 2025, missing an annual RMD triggers a 25% excise tax on the shortfall (reduced to 10% if corrected within the correction window).

The compressed-bracket tax trap for accumulation trusts

This is the most expensive mistake successor trustees make with IRAs-in-trust. An accumulation trust that receives IRA distributions and holds the cash inside the trust faces the same compressed federal income tax brackets as any other non-grantor trust.⁶

An individual beneficiary doesn't reach 37% until approximately $626,000 of taxable income. A trust hits the same rate at just $16,000.

Concrete example — $500K inherited IRA, accumulation trust, 10-year rule: If the trust takes $50,000 per year from the IRA and retains all of it (no distributions to beneficiaries), roughly $34,000 of each year's distribution is taxed at 35–37% federal. Compare this to an adult-child beneficiary in the 22% bracket: distributing the $50,000 out to them saves 13–15 percentage points of tax — roughly $6,500–$7,500 per year, or $65,000–$75,000 over the 10-year period. The trustee's discretion to distribute is a meaningful financial lever.

The 3.8% Net Investment Income Tax does not apply to traditional IRA distributions (they are ordinary income, not investment income) — but it may apply to any investment income the distributed cash then earns inside the trust if it is retained there.⁷

Practical steps for the successor trustee

1. Identify all IRAs and 401(k)s in the estate immediately. Contact custodians for beneficiary designation records. Do not assume the trust is or isn't the beneficiary until you have the paperwork.
2. Determine the type of see-through trust you have. Give the trust document to the estate attorney with the specific question: "Is this a conduit trust or accumulation trust?" The answer determines your distribution options.
3. Submit the trust documentation to the IRA custodian by October 31 of the year following the IRA owner's death. Missing this deadline forfeits the see-through trust rules.
4. Open an inherited IRA in the trust's name. The account title should be something like: "[Decedent Name], deceased [date], IRA FBO [Trust Name]." The custodian's form controls the exact titling.
5. Determine whether annual RMDs are required by confirming whether the decedent had reached their required beginning date. If yes, calculate the first year's RMD immediately — the penalty for missing it is 25% of the shortfall.
6. Model the distribute-vs-retain tax analysis annually. For an accumulation trust, compare the trust's marginal rate on retained IRA distributions against each beneficiary's individual marginal rate. Distributing to lower-bracket beneficiaries almost always reduces the total family tax bill.
7. Document your distribution decisions. As with all trustee decisions, the rationale for each year's distribution — including the tax analysis supporting it — should be in writing in your trustee records. A beneficiary who later believes you unnecessarily concentrated income in the trust's compressed brackets could bring a breach of fiduciary duty claim.

When the trust cannot distribute: the special-needs exception

If the trust exists to protect a beneficiary receiving government benefits (SSI, Medicaid), distributing IRA cash to that beneficiary can disqualify them from those programs. This is one situation where retaining distributions in an accumulation trust — and paying the higher trust-level tax — is the right call. An SNT trustee navigating inherited IRA rules should involve both the estate attorney and an advisor familiar with special-needs planning. The tax cost of retention is the price of preserving benefits eligibility.

How a fee-only advisor fits into this picture

The intersection of inherited IRA rules and trust taxation is one of the most technically demanding areas in financial planning. You need:

• The estate attorney to confirm trust type, qualify the trust as see-through, and submit documentation to the custodian on time.
• A CPA with fiduciary and IRA experience to calculate annual RMDs correctly (using the correct life expectancy table), report trust-level income correctly on Form 1041, and issue K-1s to beneficiaries who receive distributions.
• A fee-only financial advisor to model the annual distribute-vs-retain decision, manage the inherited IRA's investment allocation during the 10-year distribution period, and ensure the trust's other assets are managed with the same attention to tax efficiency.

A trustee who makes this decision without modeling it — either by always distributing or always retaining, without analysis — is not executing the prudent investor standard. The decision must be informed by the facts each year: the trust's income, each beneficiary's tax situation, and the trust's distribution needs.

Sources

1. IRS — Required Minimum Distributions for IRA Beneficiaries. See-through trust requirements, October 31 deadline, beneficiary designation rules.
2. Fidelity — Inherited IRA Rules for Trusts. Conduit vs accumulation trust mechanics, beneficiary taxation, and distribution flow-through rules.
3. IRS Publication 590-B — Distributions from Individual Retirement Arrangements. 10-year rule for non-eligible designated beneficiaries, required beginning date rules, SECURE Act provisions.
4. Kitces — IRS Final Regulations: 10-Year Rule, Beneficiaries, RMDs (Treasury Decision 10001). Finalized July 2024; annual RMD requirement when decedent past RBD; correction rules and 25% excise tax.
5. IRS — Retirement Topics: Required Minimum Distributions (RMDs). Required beginning date: April 1 of year following the year account owner turns 73 (born 1951–1959) or 75 (born 1960+), per SECURE 2.0 § 107.
6. IRS Form 1041-ES (2026) — Estimated Income Tax for Estates and Trusts. 2026 trust tax brackets: 37% top rate on income over $16,000. IRS Rev. Proc. 2025-32.
7. IRS Topic No. 559 — Net Investment Income Tax. Traditional IRA distributions are ordinary income, not net investment income; NIIT does not apply to the distribution itself.

Tax values verified against 2026 IRS Rev. Proc. 2025-32 (trust brackets), SECURE 2.0 § 107 (RBD ages), and Treasury Decision 10001 (annual RMD finalization, July 2024). This guide covers federal rules only — state income tax treatment of inherited IRAs varies.