My Trust Is the Primary Beneficiary of My IRA, Should I Add Contingent Beneficiaries?

A trust must be properly designed in order to operate as you want.

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When you make your trust the primary beneficiary of your individual retirement account, then there is no chance of the IRA’s contingent beneficiaries receiving the inheritance. Contingent beneficiaries only take an inheritance if all of the primary IRA beneficiaries have died or disclaimed the IRA before it's distributed. Trusts don’t die, so a trust named as the primary beneficiary precludes distributions to the IRA's contingent beneficiaries.


Not all trusts are acceptable IRA beneficiaries. An unacceptable trust named as the beneficiary might require the trustee to make a distribution to all the trust beneficiaries by the end of the fifth year following the deceased’s year of death. An acceptable trust for IRA purposes must be irrevocable upon the death of the IRA owner. The trust must be valid under state law and must clearly identify its beneficiaries -- these are known as “conduit” trusts. The trustee must receive a copy of the trust instrument and all updates to it. If the trust is acceptable, the trustee can stretch out distributions according to IRA rules.

Conduit Trusts

Any beneficiary of a conduit trust can request immediate distribution of her portion of an IRA, or a distribution according to the five-year rule. If the IRA beneficiary is a conduit trust, the trustee determines distributions on Sept. 30 of the year following the death of the IRA owner. If on that date any conduit trust beneficiary is a charity or some other entity other than an individual, the trustee must distribute the IRA according to the five-year rule. Otherwise, the trustee uses the age of the oldest trust beneficiary -- known as the designated beneficiary -- to figure how much of the IRA to distribute each year.


The required beginning date on which an IRA owner must begin receiving minimum distributions is April 15 of the year following the year in which the owner reaches age 70 1/2. If the owner dies before the required beginning date, the trustee of a conduit trust uses the life expectancy of the designated beneficiary on the Sept. 30 decision date to calculate annual distribution amounts from a conduit trust. The trustee divides each beneficiary’s portion of the IRA proceeds by the designated beneficiary’s life expectancy to arrive at the annual distributions. If the owner dies on or after the required beginning date, the trustee uses the owner’s life expectancy as of his birthday in the year of his death or the life expectancy of the designated beneficiary, whichever is longer.


If the owner names his spouse as a primary beneficiary of his IRA, she can roll the proceeds into her own IRA and avoid taking distributions until she reaches age 70 1/2. If the spouse is instead the sole beneficiary of a conduit trust, she must begin taking distributions at the deceased owner’s required beginning date. However, the size of this distribution is based on the spouse’s life expectancy, not that of the IRA owner. If the spouse is not the sole beneficiary of the conduit trust, the trustee makes distributions based on the life expectancy of the designated beneficiary.

Contingent Beneficiaries

While it is meaningless to name contingent IRA beneficiaries if the primary beneficiary is a trust, it may make sense to name contingent trust beneficiaries. If none of the trust’s primary beneficiaries is still on the trustee’s designated beneficiary list on the Sept. 30 decision date, the IRA distributions might go to the contingent beneficiaries. This can occur for several reasons, including the death of primary beneficiaries, disclaiming the trust inheritance or paying out a lump sum to a primary beneficiary before Sept. 30. However, if the owner specified “per stirpes” distributions, the inheritance goes to the heirs of a deceased or disclaiming primary beneficiary rather than to a contingent beneficiary.