Sometimes you should not leave an IRA to a person at all—if the heir is a minor, a spendthrift, on needs-tested benefits, or married to someone you would not trust with the money, you want a trust between them and the account. But naming a trust as an IRA beneficiary is a drafting minefield. To avoid the worst outcome—the entire account taxed within five years—the trust must qualify as a see-through trust under the Treasury regulations: valid under state law, irrevocable at death, identifiable individual beneficiaries, and documentation delivered to the plan administrator by October 31 of the year after death. A see-through trust then splits into two flavors, and the choice governs both taxes and control:
The trustee must pass every distribution the trust receives from the IRA straight out to the beneficiary in the year received. Simple to draft and certain to qualify, but it defeats much of the point of using a trust: under the ten-year rule the entire account must come out within ten years, so by year ten the full balance has flushed through to the beneficiary—spendthrift, creditors, and all.
The trustee may retain distributions inside the trust rather than paying them out, preserving real control and protection. The price is tax: retained IRA distributions are taxed at the compressed trust brackets, which hit 37% at about $16,000 (section “Trust Accounting and Fiduciary Taxation”). For a beneficiary who genuinely needs protection, paying trust-rate tax on accumulated income is often worth it; for a responsible adult, a conduit trust or an outright designation is cheaper.
Two cautions. An accumulation trust with a charity or other non-individual among its potential beneficiaries can blow see-through status—wall off charitable and “mere potential” beneficiaries in the drafting. And for a disabled or chronically ill beneficiary, a properly drafted accumulation trust can still qualify as an EDB and stretch over life expectancy—one of the few remaining ways to recreate the old stretch IRA (and a natural pairing with the special needs trust, section “Special Needs Trusts”).