The Biggest Estate Planning Decision You May Not Know You’re Making

Should Your IRA Go to Your Kids or Your Trust?

For many families today, the largest asset they own is not their home or brokerage account. It is their retirement account. A large IRA or 401(k) may represent a substantial portion of family wealth, yet many people are surprised to learn that retirement accounts operate under a completely different set of estate planning rules than almost every other asset they own.

Unlike most assets, retirement accounts do not pass through a trust or a will. They pass by beneficiary designation. That means the form on file with the financial institution controls who receives the account after death, regardless of what your trust or will may say. In many cases, this beneficiary designation becomes one of the most important estate planning decisions a family makes.

Historically, planning for inherited retirement accounts was fairly straightforward. Before 2020, children inheriting an IRA could generally stretch distributions over their own life expectancy. This became known as the “Stretch IRA.” A child inheriting a retirement account at age fifty might spread taxable distributions over thirty or more years, allowing the account to continue growing tax deferred while recognizing income gradually over time.

Then Congress changed the rules.

The SECURE Act, passed in late 2019 and effective for most inherited retirement accounts beginning in 2020, dramatically accelerated the taxation of inherited IRAs. Today, most adult children inheriting a retirement account must generally withdraw the entire balance within ten years. This seemingly simple change has had major implications for estate planning, especially for families using trusts.

The good news is that for many families, retirement account planning can still remain wonderfully simple.

In a stable marriage, the surviving spouse is usually the ideal primary beneficiary of a retirement account. Spouses enjoy unique advantages that no one else receives. In most situations, the surviving spouse can roll the inherited IRA into his or her own IRA, continue tax deferral, delay required minimum distributions, and generally step into the shoes of the original owner. For married couples with highly functioning finances, this is often the cleanest and most practical path.

Likewise, if children are financially capable, responsible, and independent, there is often nothing wrong with naming children directly as successor beneficiaries. In many families, this may actually be the best approach. It keeps administration simple, avoids unnecessary complexity, and provides maximum flexibility to adult children who are fully capable of managing inherited assets responsibly.

But life is not always that simple.

Sometimes children struggle with financial decision-making. Sometimes there are concerns about creditors, divorce, addiction, immaturity, mental health, or simply the possibility that a large inheritance could become more burden than blessing. In these circumstances, families often wonder whether a trust should instead be named as the retirement account beneficiary.

The answer is: sometimes yes.

A trust can provide thoughtful oversight and flexibility that an outright inheritance simply cannot. A properly designed trust can protect inherited assets from creditors, reduce vulnerability in divorce situations, provide professional investment oversight, and create a structure that supports a child without overwhelming them. A trust may allow distributions for education, healthcare, housing, or general support while still preserving long-term protection.

Importantly, this is not about mistrust. In many cases, thoughtful trust planning reflects deep care and concern for a child’s long-term well-being.

At the same time, there is an important caution. The SECURE Act changed how trusts interact with inherited retirement accounts. Many older trusts drafted before 2020 were built around rules that no longer exist. A trust written fifteen or twenty years ago may assume lifetime distributions from an inherited IRA when, under today’s rules, the account may need to be distributed within ten years. Without proper drafting, this can create unintended tax consequences or fail to accomplish the family’s original goals.

This is one reason many older estate plans deserve a second look.

In my experience, the right answer is rarely one-size-fits-all. Some families benefit from simplicity and direct beneficiary designations. Others benefit from additional structure and oversight. The key question is not whether a trust is inherently good or bad.

The better question is this: What level of protection and flexibility best fits your family?

For some families, the answer is simple. For others, the path may involve a carefully designed trust. Like many things in estate planning, the goal is not complexity for complexity’s sake. The goal is creating a plan that reflects the people you love, the assets you have built, and the life circumstances your family will actually face.