By Ginsburg Law Group, P.C. | Estate Planning & Trust Administration

When establishing a trust, families often focus on protecting assets, avoiding probate, and ensuring that their loved ones receive an inheritance according to their wishes. But how a trust handles distributions can also have significant income-tax consequences.

Two structures that deserve particular attention are conduit trusts and accumulation trusts.

Both can be used in estate planning, particularly when retirement accounts such as IRAs and 401(k)s are involved. However, they operate differently, and the distinction can affect when beneficiaries receive money, who pays income taxes, and whether inherited assets remain protected inside the trust.

For families with substantial retirement savings, rental properties, or investment assets, understanding these differences is essential to effective estate planning.

What Is a Conduit Trust?

A conduit trust is a trust that requires distributions received from an inherited retirement account to be passed on to the trust beneficiary.

For example, a parent may name a properly drafted conduit trust as the beneficiary of an IRA rather than naming an adult child directly.

When the trustee receives a distribution from that IRA, the trust must pass the distribution to, or use it for the benefit of, the designated conduit beneficiary under the trust’s terms.

The trustee generally cannot retain those retirement-account distributions inside the trust.

This arrangement can provide a framework for administering an inheritance while ensuring that retirement distributions reach the intended beneficiary.

However, a conduit trust does not necessarily reduce income taxes. In some circumstances, it may accelerate taxable income to the beneficiary or reduce the amount of inherited assets that remain protected in trust.

The term conduit trust has a specific meaning under the federal retirement-account beneficiary regulations. The final regulations issued in 2024 define it as a see-through trust whose terms provide that all distributions from the deceased account owner’s plan interest will, upon receipt by the trustee, be paid directly to, or for the benefit of, specified trust beneficiaries. A trust that merely distributes its ordinary investment or rental income each year is not automatically a retirement-account conduit trust. (For background on see-through trusts, see What Is a See-Through Trust?)

What Is an Accumulation Trust?

An accumulation trust generally allows the trustee to retain distributions or income inside the trust rather than immediately passing them to beneficiaries. Under the same regulations, any see-through trust that is not a conduit trust is an accumulation trust.

In the inherited retirement-account context, an accumulation trust can receive IRA or retirement-plan distributions and retain them for future use, subject to its terms.

This may be useful when beneficiaries are minors, have difficulty managing money, face creditor risks, or need long-term financial protection.

However, retained taxable income in a non-grantor trust can be subject to compressed federal income-tax brackets.

This creates a central estate-planning tradeoff:

A conduit trust generally prioritizes passing retirement distributions to the beneficiary, while an accumulation trust may prioritize keeping inherited assets protected inside the trust.

Neither structure is automatically more tax-efficient.

Why the SECURE Act Changed Conduit Trust Planning

The Setting Every Community Up for Retirement Enhancement Act of 2019, commonly called the SECURE Act, substantially changed the rules governing inherited retirement accounts.

Before the SECURE Act, many designated beneficiaries could take inherited retirement-account distributions over their life expectancies.

For many beneficiaries inheriting retirement accounts after 2019, that opportunity was replaced by a 10-year distribution rule. (See The IRA 10-Year Rule and Trust Planning.)

Under the current framework, many non-spouse designated beneficiaries must fully distribute the inherited retirement account by December 31 of the tenth calendar year following the calendar year of the original account owner’s death.

Certain eligible designated beneficiaries may qualify for different distribution treatment, including surviving spouses, minor children of the account owner, disabled or chronically ill individuals, and individuals not more than 10 years younger than the deceased account owner.

Special rules apply to trusts and to minor children. Under the final regulations, a child reaches the age of majority on his or her 21st birthday, and the remaining account must then generally be distributed by the end of the tenth calendar year after that. Congress also created special rules for “applicable multi-beneficiary trusts” for disabled or chronically ill beneficiaries, which can allow an accumulation-style trust to keep life-expectancy treatment.

Importantly, the 10-year rule does not always permit beneficiaries to wait until the tenth year to take every distribution. Annual required minimum distributions may apply when the original account owner died on or after the required beginning date.

Example: A $1 Million IRA Left to a Conduit Trust

Assume a parent dies leaving a traditional IRA worth $1 million to a properly drafted conduit trust for an adult child who is not an eligible designated beneficiary.

The trust qualifies for designated-beneficiary treatment, and the inherited IRA is subject to the 10-year distribution rule.

The trustee may be able to leave assets inside the inherited IRA during the permitted period, subject to any annual required minimum distributions.

However, whenever the trustee takes a distribution from the IRA, the conduit provisions require that amount to be passed to the child.

By the end of the applicable tenth year, the inherited IRA must generally be fully distributed.

The result is that the retirement-account assets ultimately pass through the conduit trust to the beneficiary rather than remaining protected inside the trust.

For a large traditional IRA, the resulting taxable distributions may push the beneficiary into higher income-tax brackets.

A conduit trust does not preserve a lifetime stretch for an ordinary adult beneficiary who is subject to the 10-year rule.

How an Accumulation Trust Changes the Result

Now assume the same $1 million IRA is payable to a properly structured accumulation trust.

The inherited IRA generally remains subject to the applicable post-death distribution rules, which depend on whether the trust qualifies as a see-through trust and which beneficiaries must be counted.

If the trust qualifies for the same 10-year distribution period, the retirement account must generally be emptied within that period.

But unlike a conduit trust, the accumulation trust may retain distributions received from the IRA.

This can provide important protection for the beneficiary.

However, when the trust retains taxable traditional IRA distributions, the resulting taxable income may be taxed to the non-grantor trust at its compressed income-tax rates.

The tax picture can look very different for a Roth IRA. Qualified Roth distributions are generally income-tax-free, so retaining them in an accumulation trust usually does not carry the same trust-bracket cost.

An accumulation trust that fails to qualify for designated-beneficiary treatment may also face a less favorable retirement-account distribution schedule.

The ability to retain retirement distributions is therefore a benefit that must be weighed against the potential tax cost.

Why Accumulation Trusts Can Pay More Income Tax

For federal income-tax purposes, non-grantor trusts reach the highest ordinary income-tax bracket at a much lower income level than individuals.

For 2026, a trust reaches the 37% federal bracket on taxable ordinary income above $16,000. A single individual does not reach that bracket until taxable income exceeds $640,600 (IRS Rev. Proc. 2025-32).

As a result, retaining a substantial traditional IRA distribution inside a trust may produce a higher federal income-tax liability than passing that income to an individual beneficiary in a lower bracket.

Example: A $150,000 Traditional IRA Distribution

Assume an inherited traditional IRA distributes $150,000 to a trust, and the distribution is fully taxable.

Conduit trust: The trustee must pass the retirement distribution to the conduit beneficiary. The income is generally carried out to the beneficiary under the applicable trust income-tax rules, potentially allowing taxation at the beneficiary’s individual rates.

Accumulation trust: The trustee may retain the $150,000. If the trust is a non-grantor trust and retains the taxable income, the trust may owe federal income tax at the highest trust rates on most of that income. (IRA distributions are excluded from the 3.8% Net Investment Income Tax under IRC § 1411(c)(5), so that additional tax generally does not apply to the distribution itself.)

The accumulation trust may nevertheless be preferable if preserving the inheritance from creditors, financial mismanagement, or other risks is more important than minimizing the current income-tax burden.

The actual tax outcome depends on distributable net income, deductions, income character, beneficiary circumstances, and the trust’s tax classification.

Conduit Trust vs. Accumulation Trust: Key Differences

Feature	Conduit Trust	Accumulation Trust
Retirement distributions	Must pass to (or be used for) the conduit beneficiary	May be retained if permitted
Income-tax burden	Generally passes taxable retirement distributions to beneficiary	Retained taxable income may be taxed to trust
Beneficiary control	Receives retirement distributions as required	Trustee may control timing
Creditor protection	Distributed amounts generally leave trust protection	Retained assets may remain protected
SECURE Act 10-year rule	Generally applies to ordinary adult beneficiaries	May apply if trust qualifies; otherwise different rules may apply
Long-term preservation	Limited for retirement distributions	Greater potential for retaining distributed assets

The correct choice depends on the beneficiary’s circumstances, the retirement-account type, and the trust’s overall purpose.

How Conduit Trusts Relate to Ordinary Trust Income

Conduit trust planning should not be confused with the general question of whether a trustee should distribute rental income, dividends, interest, or capital gains.

For example, a trust owning rental property may distribute its net fiduciary accounting income to beneficiaries annually.

Depending on the trust’s federal tax classification and distributable net income, those distributions may carry taxable income to the beneficiaries.

But that does not automatically make the trust a conduit trust for inherited IRA purposes.

The distinction matters because retirement accounts are governed by special beneficiary and required minimum distribution rules. (For more on how retirement and non-retirement accounts fit into a trust plan, see Qualified vs. Nonqualified Accounts.)

Rental Property Example

Suppose a non-grantor trust owns a California rental property generating $60,000 in annual taxable income.

If the trust accumulates that income, it may owe federal income tax at compressed trust rates.

If the trust makes qualifying distributions to beneficiaries, some or all of the income may instead be taxed to those beneficiaries.

This is ordinary trust income-tax planning.

It does not require a retirement-account conduit trust.

In addition, a trust’s fiduciary accounting income may differ from its taxable income because of depreciation, expenses, principal allocations, and other adjustments.

What About QTIP Trusts?

A Qualified Terminable Interest Property (QTIP) trust presents a different planning consideration.

A QTIP trust generally requires the surviving spouse to receive all fiduciary accounting income at least annually.

That requirement may make the trust appear similar to a conduit trust, but the two structures are not interchangeable.

A QTIP trust is primarily an estate-tax marital-deduction arrangement.

A retirement-account conduit trust is a specialized structure governing how retirement distributions pass through a trust to a beneficiary.

A QTIP trust may hold rental real estate, investments, or retirement-related assets, but special rules apply when retirement accounts are involved.

For example, when an IRA is payable to a trust intended to qualify for the QTIP marital deduction, the trustee may need to address both the spouse’s entitlement to trust income and the income generated within the IRA. The IRS addressed this in Rev. Rul. 2006-26, which explains when a surviving spouse has the required income interest in both the IRA and the marital trust.

A trust that qualifies for the QTIP marital deduction does not automatically satisfy the retirement-account conduit trust rules.

Careful drafting is necessary to coordinate the marital deduction, required minimum distributions, surviving spouse’s income rights, and the ultimate beneficiaries.

Does a Conduit Trust Provide a Step-Up in Basis?

The answer depends on the type of asset and the applicable estate-inclusion rules.

A conduit trust does not automatically create a step-up in basis.

Traditional IRAs and other retirement accounts containing income in respect of a decedent do not receive a basis adjustment under IRC § 1014; § 1014(c) excludes income in respect of a decedent.

Consequently, inherited traditional IRA distributions generally remain taxable under the applicable retirement-account rules, subject to any basis attributable to nondeductible contributions and other exceptions.

By contrast, appreciated rental property included in a decedent’s estate may qualify for a basis adjustment under § 1014.

For California married couples, qualifying community property may receive a full basis adjustment at the first spouse’s death.

Properly elected QTIP property may also receive an adjustment at the surviving spouse’s death.

This is why retirement-account planning and real estate basis planning should be coordinated, but not treated as identical tax strategies.

Can a Trust Be Designed to Balance Taxes and Asset Protection?

Yes. Trust planning can sometimes incorporate different provisions for different types of assets.

For example, an estate plan might use:

• A conduit trust for certain retirement-account benefits where appropriate.
• A discretionary accumulation trust for other inherited assets.
• A QTIP trust to provide for a surviving spouse while preserving remainder beneficiaries’ interests.
• A revocable living trust to manage assets during life and coordinate distributions at death.

Some plans may also use separate retirement-account trusts or beneficiary-specific shares.

The goal is to avoid applying one trust structure indiscriminately to assets with different tax characteristics.

However, simply creating multiple trusts does not guarantee tax savings. Separate trust rules, anti-abuse provisions, beneficiary designations, and state tax considerations must be reviewed.

Five Questions to Ask Before Naming a Trust as an IRA Beneficiary

Before naming a conduit or accumulation trust as the beneficiary of a retirement account, consider:

1. Who is the intended beneficiary? Is the person a surviving spouse, minor child, disabled individual, or ordinary adult beneficiary?

2. What type of retirement account is involved? Traditional IRAs, Roth IRAs, and employer-sponsored plans can have different tax consequences.

3. Does the trust qualify as a see-through trust? The trust’s terms and beneficiaries can affect the applicable distribution period.

4. Should the beneficiary receive distributions immediately? Or is preserving the funds inside a trust more important?

5. How much tax could the distributions generate? Large retirement-account balances may produce substantial taxable income during the required distribution period.

These questions should be addressed before the account owner dies, because correcting beneficiary-designation or trust-drafting problems afterward can be difficult or impossible. (See also Should You Name Your Living Trust as the Primary or Contingent Beneficiary of Your 401(k)?)

The Bottom Line: Conduit Trusts and Accumulation Trusts Serve Different Purposes

Conduit trusts and accumulation trusts can both play valuable roles in estate planning.

A conduit trust can help ensure retirement distributions reach the intended beneficiary, potentially allowing the income to be taxed at individual rather than compressed trust rates.

An accumulation trust can provide greater control over inherited assets and preserve funds for future needs, but retaining taxable income may increase the trust’s income-tax liability.

For families with substantial retirement accounts, rental properties, and other investments, the best estate plan often requires a coordinated approach that considers income taxes, capital gains, estate taxes, beneficiary protection, and the SECURE Act.

The objective is not simply to minimize taxes in one year. It is to preserve the greatest possible long-term benefit for the people the trust was created to protect.

Speak With Ginsburg Law Group About Trust and Estate Planning

Ginsburg Law Group, P.C. assists families with estate planning, trusts, inheritance planning, and trust administration.

Whether you are considering a conduit trust, accumulation trust, QTIP trust, or another estate-planning arrangement, our attorneys can help you understand the legal considerations and evaluate a structure appropriate for your family’s needs. Contact us to schedule a consultation.

Website: www.ginsburglawgroup.com

Email: estates@ginsburglawgroup.com

Legal Authorities and Resources

• IRC § 401(a)(9): Required Minimum Distributions
• Treasury Regulations §§ 1.401(a)(9)-4 and 1.401(a)(9)-5 (final regulations, 89 Fed. Reg. 58886, July 19, 2024): Beneficiary and Distribution Rules
• SECURE Act of 2019
• SECURE 2.0 Act of 2022
• IRC §§ 641–663: Income Taxation of Trusts and Estates
• IRC § 691: Income in Respect of a Decedent
• IRC § 1014: Basis of Property Acquired From a Decedent
• IRC § 1411: Net Investment Income Tax
• IRC § 2044 and § 2056(b)(7): QTIP Trusts
• Rev. Rul. 2006-26: IRAs Payable to QTIP Marital Trusts
• Rev. Proc. 2025-32: 2026 Tax Rate Schedules
• IRS Publication 590-B: Distributions From Individual Retirement Arrangements (IRAs)
• IRS Publication 559: Survivors, Executors, and Administrators

Disclaimer: This article is for general educational purposes only and does not constitute legal or tax advice. Retirement-account distribution rules, trust taxation, and estate-planning outcomes depend on the account owner’s date of death, beneficiary status, trust terms, and applicable federal and state law. Reading this article does not establish an attorney-client relationship.