When a trust inherits an IRA, the question isn’t just who gets the money — it’s how and when they can take it. Once you’ve determined that your trust qualifies as a see-through trust, the next crucial step is figuring out what type of see-through trust it is.

This is where two key terms come into play: conduit trust and discretionary (or accumulation) trust. Think of them like two different distribution blueprints: one passes income straight through to beneficiaries, while the other allows the trustee to hold back funds for future use.

What Is a Conduit Trust?

A conduit trust acts almost like a delivery service for IRA distributions. Every time the IRA pays out to the trust, those funds must immediately be passed on to the named beneficiary. The trust can’t keep them.

That simplicity makes life easier when it comes to the IRS’s required distribution rules because only the primary beneficiary — not remainder or backup beneficiaries — is considered when determining payout rules.

A conduit trust often works well when:

• You want beneficiaries to receive funds regularly rather than all at once.
• The beneficiaries are financially responsible adults.
• Your main goal is to simplify compliance with Required Minimum Distribution (RMD)

Example:
John leaves his IRA to a conduit trust for his adult son, Matt. Each year, RMD amounts are distributed from the IRA to the trust and then immediately passed to Matt. Because he’s the only relevant beneficiary, distributions can be stretched (or deferred) based on his eligibility category under the SECURE Act.

What Is a Discretionary (Accumulation) Trust?

In contrast, a discretionary trust gives the trustee much more flexibility. The trustee can decide when and how to distribute IRA funds, or even keep them inside the trust for future needs.

That flexibility comes with a trade-off: since the trust can retain assets, all potential beneficiaries (even contingent or backup ones) must be considered when determining how long the IRA can remain tax-deferred.

This structure can protect vulnerable beneficiaries, like minors or those with disabilities, from mismanaging funds — but it may shorten the stretch period for tax purposes.

Common uses include:

• Protecting assets for a child who receives government benefits.
• Managing complex family dynamics, especially in second marriages.
• Preventing large, sudden inheritances that might be spent unwisely.

Example:
Mark leaves his IRA to a discretionary trust for his daughter, Emily, and names his brother as a backup beneficiary. Because there’s more than one possible beneficiary, and not all qualify as “eligible designated beneficiaries,” the IRA must be fully distributed within 10 years under the SECURE Act’s standard rules.

Choosing Between the Two

Ultimately, the choice between a conduit and a discretionary trust depends on your goals for control, flexibility, and tax efficiency. A conduit trust offers simplicity and cleaner distribution rules, while a discretionary trust prioritizes protection and long-term planning at the expense of more complicated payout timing.

One often overlooked consideration is how trust tax rates differ from individual tax rates. In 2026, trusts hit the top federal bracket of 37% at just $16,000 of taxable income, while individual taxpayers don’t reach that same bracket until $640,601 for single filers. In plain terms, trusts can reach sky‑high tax rates on relatively small amounts of income. Wherever possible, structuring a trust to pass IRA distributions to beneficiaries (allowing them to be taxed at their personal rates) can significantly reduce overall taxes, unless the grantor determines that the protective benefits of a less tax‑efficient trust outweigh those costs.

Bottom line: for personalized guidance, it’s wise to coordinate with an estate planning attorney and a financial advisor familiar with the SECURE Act changes to inherited IRAs.

Next Up:
In Part 3, we’ll unpack how different classes of beneficiaries — from spouses to minor children to charities — affect the pace and rules of IRA distributions through a trust.