Whether you’re sitting at the dinner table, in the office of a financial advisor, or just researching estate planning strategies on your own, one piece of advice seems to pop up again and again: “Don’t name your trust as the beneficiary of your IRA.”
That advice is often repeated, but rarely explained in detail. Unfortunately, it causes confusion. Many financial advisors will tell their clients that doing so is a mistake that will create tax problems or overly complicate their estate.
We’ve even heard entire dinner groups in 55+ neighborhoods where everyone confidently declared that naming a trust as the beneficiary of your IRA was a terrible idea. But is that actually true? Not necessarily. In fact, in many cases, it’s one of the best things you can do.
Most People Have IRAs
The majority of retirees have some sort of IRA-based account. It could be a traditional IRA, a 401(k), or a 403(b). These accounts often hold a large portion of retirement savings, and they’re a central piece of income planning in retirement.
One of the key benefits of these accounts is the ability to name a beneficiary. But what many people don’t realize is that your choice of beneficiary has long-term consequences. Too often, people forget to name a beneficiary altogether. Or they name only their spouse and don’t include a contingent. Sometimes, people mistakenly name their estate as the beneficiary, which can trigger probate and other complications. And in many cases, people misunderstand the difference between naming a trust as beneficiary and actually transferring ownership of the IRA into a trust.
Let’s clear that up.
Naming a Trust vs. Changing Ownership
There is a big difference between changing ownership of your IRA and naming your trust as the beneficiary. Changing ownership (by placing the IRA itself in the name of a trust) creates immediate tax consequences and is not permitted. That’s not what we recommend.
What we do recommend, in many cases, is naming your revocable trust as the beneficiary of your IRA. This does not change ownership. It does not trigger taxes. The account remains yours during your lifetime. You’re simply telling the financial institution where you want the money to go when you pass away.
Why It Matters
So why would someone want to name their trust as the beneficiary of their IRA? One word: protection.
When an IRA is left directly to a spouse, child, or grandchild, it becomes their asset. It’s subject to their creditors. It can be lost in a divorce. It can be spent down in a nursing home. But if that same IRA is passed through a properly prepared trust, those assets stay protected. The trust creates a legal barrier between the inherited funds and any threats the beneficiary may face.
In other words, beneficiary designation equals asset protection, but only if the trust is the named beneficiary. If you leave the IRA directly to your child, they may spend it, lose it, or have it taken from them. If you leave it to your trust, the terms of the trust can help ensure it lasts.
What to Do Next
IRA titling is often misunderstood, even by professionals. However, your choice of beneficiary is one of the most powerful estate planning tools at your disposal and it should match the rest of your plan.
You can’t name your will as a beneficiary. You shouldn’t name your estate as the beneficiary either. But naming a properly structured trust? That can make all the difference.
If you’re unsure whether your IRA beneficiaries are set up the right way, or if you want your inheritance to offer protection (not just a payout), reach out to J. Kevin Tharpe, PC. We’ll help you make sure your plan actually works the way you intend.
Kevin Tharpe
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- Should You Name Your Trust as the Beneficiary of Your IRA? - April 9, 2026
