Can You Put Retirement Accounts In A Trust In Illinois?

Estate planning is about more than just deciding who inherits your assets. It’s about making sure your loved ones avoid unnecessary delays, expenses, and stress in probate court. One of the most common questions we hear is: “Can I put my retirement accounts in a trust to avoid probate?”

The short answer is no – but there are smart ways to use trusts and beneficiary designations together to protect your retirement savings and your family.

 

Why Probate Is a Concern in Illinois

Probate is the court-supervised process of validating a will, paying debts, and distributing assets after someone dies. In Illinois, probate can be:

• Time-consuming – often taking months or even years. 
• Expensive – court costs, attorney’s fees, and administrative costs add up quickly. 
• Public – probate filings are part of the public record, meaning your family’s financial affairs are not private. 

By carefully structuring your estate plan, including how retirement accounts are handled, you can reduce or even eliminate the need for probate.

 

Can You Put Retirement Accounts in a Trust?

Generally, retirement accounts (such as 401(k)s, IRAs, and pensions) cannot be owned by a trust while you are alive. The IRS requires these accounts to remain in your name as the account holder. If you try to transfer them into a trust, you may trigger immediate taxation and penalties.

But that doesn’t mean trusts and retirement accounts can’t work together. The key is beneficiary designations.

 

How Trusts and Retirement Accounts Work Together

When planning with your estate attorney, here are 5 important points to discuss:

1. Review your retirement accounts
   Make sure your beneficiaries are up to date and reflect your estate planning goals. 
2. Why retirement accounts stay in your name
   IRS rules require ownership to remain with the account holder. 
3. Tax consequences
   Moving the account into a trust could cause immediate taxation, ending the tax-deferred growth of your retirement savings. 
4. Name your trust as a beneficiary
   While you cannot transfer ownership, you can name your revocable trust as the beneficiary of the account after your death. 
5. Coordinate with your overall estate plan
   Properly structured, this strategy can help your heirs avoid probate while protecting your assets. 

 

The SECURE Act and the 10-Year Rule

Another factor to consider in probate and retirement planning is the SECURE Act, a federal law that changed how inherited retirement accounts are distributed.

• Most non-spouse beneficiaries must now withdraw the entire balance of an inherited IRA or 401(k) within 10 years of the original owner’s death. 
• This means fewer opportunities for long-term tax-deferred growth. 
• If a trust is the beneficiary, it must be carefully drafted as a see-through or conduit trust to avoid accelerated taxation. 

This rule makes it even more important to work with an estate planning attorney, because improper planning could cost your heirs thousands in unnecessary taxes.

 

Benefits of Naming a Trust as a Beneficiary

Naming a trust as the beneficiary of your retirement accounts can provide:

• Probate avoidance – the funds transfer directly, bypassing court. 
• Asset protection – shields from creditors, divorce, or poor financial decisions by heirs. 
• Control and oversight – allows you to control how and when your heirs receive money. 
• Special protection – useful for minor children, special needs beneficiaries, or loved ones who are not financially responsible. 

 

Potential Downsides to Consider

Before making your trust the beneficiary, weigh these factors:

• Trusts can cost more to establish and maintain. 
• Trust administration is more complex than leaving assets outright. 
• If not drafted correctly, you risk losing tax advantages or tax-deferred growth. 
• The SECURE Act 10-Year Rule may limit how long assets remain protected within the trust. 

 

Why Work With an Estate Planning Attorney?

Every family’s situation is unique. An experienced Illinois estate planning attorney can:

• Help you avoid probate delays and expenses. 
• Review and update beneficiary designations so they align with your estate plan. 
• Draft trusts that comply with Illinois and federal law, including the SECURE Act. 
• Protect your heirs’ inheritance while minimizing taxes and court involvement. 

 

FAQs About Retirement Accounts, Trusts, and Probate in Illinois

1. Can I put my retirement accounts, like a 401(k) or IRA, into a revocable trust?
   No. Retirement accounts must remain in your name while you are alive. If you transfer them into a trust, the IRS treats it as a full withdrawal, which could trigger immediate income taxes and penalties.
2. Can I name my trust as the beneficiary of my retirement account?
   Yes. While you can’t transfer ownership of the account to the trust, you can name your trust as the beneficiary. This ensures the funds bypass probate and are distributed according to the terms of your trust.
3. Why is probate a concern for retirement accounts?
   Without a beneficiary designation, retirement accounts may need to go through probate. In Illinois, probate can be time-consuming, expensive, and public. Naming beneficiaries—or a trust—can help your loved ones avoid this process.
4. What are the benefits of naming a trust as the beneficiary of my retirement accounts?
   A trust can protect the inheritance from creditors, divorce, or poor financial decisions; control how and when your heirs receive money; and provide special protection for minor children or beneficiaries with special needs.
5. What is the SECURE Act’s 10-Year Rule, and how does it affect my beneficiaries?
   Under the SECURE Act, most non-spouse beneficiaries must withdraw the entire balance of an inherited retirement account within 10 years. If your trust is the beneficiary, it must be properly structured as a “see-through” or “conduit” trust to preserve tax advantages. Otherwise, the account may face accelerated taxation.
6. Why should I work with an estate planning attorney when setting this up?
   Trust and retirement account rules are complex. An experienced Illinois estate planning attorney can make sure your beneficiary designations are correct, your trust complies with state and federal law, and your loved ones avoid probate delays and unnecessary taxes.

 

Talk to an Oak Brook Probate and Estate Planning Lawyer

You cannot directly place retirement accounts in a trust – but with the right planning, you can use trusts and beneficiary designations to avoid probate and protect your loved ones.

The Estate and Probate Legal Group in Oak Brook, Illinois, can guide you through your options so your assets are preserved and your family is protected.

📞 Call us today at 630-864-5835 to schedule a consultation.

We proudly serve clients in Cook, DuPage, Kane, Kendall, and Will counties.