Your Trust Could Reach the 37% Tax Bracket at Just $16,000
You worked hard to build your retirement savings. You set up a trust, named beneficiaries, and made choices meant to protect the people you love.
That matters.
But if your IRA names your trust as beneficiary, it is worth taking a fresh look—especially if your estate plan was created before the SECURE Act changed the rules for inherited retirement accounts.
Here is the part that surprises many families: in 2026, a trust can reach the highest federal income-tax bracket of 37% once it has more than $16,000 of taxable income. A single individual does not reach that same top bracket until taxable income exceeds $640,600.
That does not mean a trust is automatically the wrong choice. It means the trust, the IRA beneficiary form, and your family’s current circumstances need to work together.
At Freedom Law Services, we help Northern Kentucky and Cincinnati families look beyond the paperwork and ask the more important question: What do you want this money to do for the people you love?
The SECURE Act Changed the Landscape
For years, many people expected their children or other loved ones to be able to “stretch” inherited IRA withdrawals over their own lifetimes. That could allow the money to remain invested longer and spread taxable income over many years.
The SECURE Act changed that for many inherited retirement accounts. For most non-spouse beneficiaries, the inherited IRA now must be fully distributed by the end of the 10th calendar year after the original account owner’s death.
That is a major shift for families who created their estate plans before 2020.
There are important exceptions. A surviving spouse, certain minor children, a beneficiary who is disabled or chronically ill, and someone who is not more than 10 years younger than the IRA owner may qualify for different distribution treatment.
And the timing of withdrawals can matter, too:
If the IRA owner dies before reaching the required beginning date for distributions, many beneficiaries may have flexibility in when they take withdrawals during the 10-year period—as long as the account is empty by the deadline.
If the IRA owner dies after that point, annual required minimum distributions may also apply during years one through nine, with the remaining account balance distributed by the end of year 10.
Traditional IRA withdrawals are generally taxable income. So when a large IRA must be withdrawn over a shorter period, those distributions can land right on top of a beneficiary’s salary, business income, investment income, or other life changes.
For a family in Crestview Hills, Covington, Fort Thomas, or across the river in Cincinnati, this is not just a technical tax issue. It can affect whether an inheritance strengthens someone’s future or creates stress at the wrong time.
Why the $16,000 Number Matters
In 2026, estates and trusts use these federal income-tax brackets:
10% on the first $3,300;
24% from $3,300 to $11,700;
35% from $11,700 to $16,000;
and 37% on taxable income over $16,000.
These are marginal tax brackets. That means the entire trust income is not suddenly taxed at 37% once it passes $16,000. Only the income above that threshold reaches the highest rate.
Still, the point is important: trusts reach the top tax bracket very quickly.
Imagine a parent who names a trust as beneficiary of a large IRA because they want to protect a child’s inheritance. That child may be in the middle of a divorce. They may own a business with personal guarantees. They may be working through addiction, struggling with creditors, or simply not ready to receive a large amount of money outright.
If every IRA distribution is pushed directly to that child just to reduce trust-level taxes, the money may become exposed to the very risks the parent hoped to avoid.
That is why tax planning should not be the only planning.
The $16,000 number is a warning light. It tells us to look more closely. It does not tell us to abandon protection.
Two Families Can Need Different Plans
When a trust is named as the beneficiary of an IRA, the trust language matters. The way the trust handles retirement-account distributions can affect both taxes and protection.
A conduit trust generally requires retirement-account distributions received by the trust to pass through to the beneficiary.
This may move taxable income off the trust’s tax return and onto the beneficiary’s individual tax return. That can be helpful in some situations. But it also means the money may go directly into the beneficiary’s hands—and potentially into the reach of a divorce, lawsuit, creditor issue, or poor financial decision.
An accumulation trust gives the trustee more ability to keep distributions inside the trust.
That can preserve protection and allow the trustee to distribute funds carefully, when and how they are needed. The tradeoff is that income retained in the trust may be taxed at the trust’s compressed tax rates.
Neither option is automatically better.
One family may decide that getting money out to an adult child makes sense because the child is financially responsible, has a stable family life, and would benefit from managing the inherited funds directly.
Another family may decide that the higher tax cost is worth it because the trust needs to protect a child in a vulnerable season of life.
We do not believe in choosing estate-planning tools from a menu. We believe in understanding your family first.
That means talking about the real-life issues that do not show up on an IRA beneficiary form:
Is your child married, divorced, or facing relationship uncertainty?
Does your child own a business or work in a high-liability profession?
Are there concerns about creditors, substance use, spending, disability, or financial maturity?
Will an inheritance affect benefits or care planning?
Who should serve as trustee, and do they understand both the responsibility and the person they are helping?
A good estate plan protects the account. A great Life & Legacy Plan helps protect the person receiving it.
Your Beneficiary Form Is Part of the Plan
Many families are surprised to learn that an IRA usually passes according to its beneficiary designation—not according to what their will says.
You can have a carefully prepared trust, a will in a binder, and a clear wish to protect your family. But if an old beneficiary form names a former spouse, an adult child outright, or a trust that no longer reflects your current plan, that form can create a disconnect.
We see this more often than people think.
A family may have updated the trust after a remarriage, the birth of grandchildren, a business change, or a health concern. Yet the retirement-account paperwork was never updated. Or the trust was named as beneficiary years ago, before the SECURE Act changed inherited IRA planning.
When we review an estate plan, we do not look at documents in isolation. We look at the full picture:
Your trust and other legal documents
IRA, 401(k), and life-insurance beneficiary designations
Your family relationships and current concerns
Your assets and how they are titled
Your trustee choices
Your CPA, financial advisor, insurance professional, and other trusted advisors
That coordination matters. It helps keep your plan from working at cross-purposes.
A Trust Must Meet the Rules
Not every trust receives the same treatment when it is named as the beneficiary of an IRA.
In general, a trust may need to qualify as a “see-through” trust for the retirement-account rules to look through the trust to its underlying beneficiaries. If it qualifies, the trust may be able to use beneficiary-based distribution rules, including the 10-year rule that applies to many beneficiaries.
If a trust does not qualify, different rules can apply. For example, if an IRA owner dies before the required beginning date and has not named a designated beneficiary, a five-year rule may apply.
The details can become technical quickly, but the takeaway is simple:
Do not assume an older trust will work the way you intended under today’s retirement-account rules.
A review should consider the trust terms, the people who may benefit from the trust, the IRA owner’s age and distribution status, and the family’s goals for protection and access.
Protection Is About More Than Taxes
Parents often tell us they want to protect an inheritance without controlling their children from the grave.
That is a thoughtful goal.
The best planning does not simply build walls around money. It creates a structure that gives your loved ones support, flexibility, and guidance when life gets complicated.
A trust can help protect inherited assets from court, conflict, creditors, divorce, and poor timing. But an estate plan should also prepare the people who will someday carry the responsibility forward.
That may mean sharing the values behind your decisions. It may mean choosing a trustee who knows your family well. It may mean helping your children understand why certain money stays in trust instead of being handed over all at once.
Estate planning is not just about where your assets go after you are gone. It is about the legacy those assets create.
When to Review Your Plan
It is time to bring your plan back to the table if:
Your estate plan was created before the SECURE Act.
Your trust is named as beneficiary of an IRA or retirement account.
Your retirement accounts have grown significantly.
A child has married, divorced, started a business, developed health concerns, or entered a difficult season.
Your trustee choice no longer feels right.
You have not reviewed your beneficiary designations in several years.
You are not sure whether your trust is designed to work with today’s inherited IRA rules.
The plan that fit your life five years ago may not fit today. Your assets may have changed. Your family may have changed. The law has definitely changed.
At Freedom Law Services, we help families throughout Northern Kentucky and the Cincinnati area create estate plans that are practical, protective, and built around real life—not just documents.
Let’s Make Sure It Still Works
If a trust is named on your IRA beneficiary form, do not panic—and do not assume the plan is broken. Start with a review.
We can help you look at your trust, beneficiary designations, retirement accounts, family circumstances, and the people who will need to carry out your wishes. Together, we can identify whether your plan still protects what matters most and whether it needs to be updated for the life you are living now.
Schedule a complimentary 15-minute discovery call and let’s find out where you stand: https://freedomlawservices.com/call-today
This article is a service of Freedom Law Services, a Personal Family Lawyer® Firm. We don’t just draft documents; we help you make informed and empowered decisions about life and death for yourself and the people you love. That is why we offer a Life & Legacy Planning® Session, where you can get more financially organized than you have ever been before and make the best choices for the people you love. Call our office today to schedule your Life & Legacy Planning Session.
This material is provided for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. Every family’s circumstances are different. For advice specific to your situation, please consult the appropriate professional.
