Don’t Name Your Estate as Your IRA Beneficiary

It may sound like it makes sense, and it might be easier than picking a person (or two) to name, however there are some serious downsides to naming your estate as the beneficiary for your IRA.

Someone pushes a red button that is labeled "No!"
(Image credit: Getty Images)

I recently came across an IRA beneficiary document, as I sometimes do, that names the estate as the beneficiary. While there can be some valid reasons for this, 95% of the time this is a really bad idea.

Sadly, most of the time I see the estate named as a beneficiary it is because of a lack of knowledge, or it is done in haste. If there is any question about who should get the money, the estate is often named with the person thinking, “I’ll fix it later.” The problem is “later” is usually too late, because most people never review their beneficiary forms.

The SECURE Act has eliminated the “stretch” IRA for most beneficiaries and replaced it with a complicated set of rules for distributions. The stretch used to allow you to take out distributions over your life expectancy based on an IRS table. For most beneficiaries after the SECURE Act, the new “10-year rule” will apply. This means that most beneficiaries will have to take the funds out of the IRA by the end of the 10th year (Dec. 31 of the 10th year following the year of death). The only people who can still stretch out IRA distributions over their lifetimes include:

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  1. Surviving spouses
  2. Disabled individuals ­who meet a very strict definition of disability.
  3. Chronically ill individuals.
  4. Minor children. Only until the age of majority and then the 10-year rule will apply.
  5. Individuals within 10 years of age of the original owner.

A Major Problem with Naming Your Estate as the Beneficiary

So, if most people are going to use the 10-year rule, then why can’t you just name your estate as your beneficiary? For starters, estates cannot use the 10-year rule. They are required to distribute the funds out under a five-year rule. This can have several unwanted consequences including:

  1. Higher taxes. The shorter the timeline, the more you take out each year, the higher the potential for paying more in taxes.
  2. The higher payments can lead to higher Medicare charges (IRMMA).
  3. Potential for making Social Security payments subject to more tax.
  4. Creditor invasion. Assets left directly to a named beneficiary have good to great (depending on your state) protection against the claims of creditors. Assets in your estate do not.
  5. Higher estate administration costs. Probate fees, legal fees, etc. can also increase when the estate is named as the beneficiary.
  6. Increased potential for a “challenge” from a disgruntled heir. Challenges to a will could be more likely to be successful than a direct named beneficiary.

I understand that naming your estate can be the “path of least resistance,” but as you can see, the potential consequences far outweigh the time savings.

What to Do Instead

Take time to think through your beneficiaries and list them on your forms accordingly. The most important thing is to actually complete the beneficiary form in the first place. Then review it as needed. If you can’t find it, fill out a new form. It is a short and easy form to complete and not worth taking the risk of assuming that it is probably OK.

Review all of your beneficiary forms regularly just in case something in your situation changes. In addition, if you have questions about your beneficiaries or have a more complicated situation and aren’t sure who to name, you should talk to your financial adviser and consult with an estate planning attorney.


Securities offered through Kestra Investment Services LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services or Kestra Advisory Services. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax adviser with regard to your individual situation. To view form CRS visit


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

T. Eric Reich, CIMA®, CFP®, CLU®, ChFC®
President and Founder, Reich Asset Management, LLC

T. Eric Reich, President of Reich Asset Management, LLC, is a Certified Financial Planner™ professional, holds his Certified Investment Management Analyst certification, and holds Chartered Life Underwriter® and Chartered Financial Consultant® designations.