Trust Split 75/25 Raises Legal and Tax Questions
1h ago|7 min read1Standard
Fazen Markets Research
AI-Enhanced Analysis
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A recent MarketWatch case highlights a husband who has allocated 75% of his trust to his wife and 25% to his sister, and—critically—placed his IRAs in the trust’s name (MarketWatch, Mar 31, 2026). The decision to aggregate retirement accounts inside a trust is a common estate-planning tactic but raises immediate questions about taxation, required minimum distributions (RMDs), beneficiary flexibility and the potential for litigation. For institutional investors and wealth managers, the mechanics of these arrangements matter: they affect after-tax returns for beneficiaries, the liquidity profile of the estate, and the regulatory treatment under rules such as the 2019 SECURE Act. This article provides a data-driven, neutral assessment of the legal and tax levers that become active with a 75/25 trust allocation that includes IRAs, and outlines practical implications for advisors and trustees.
The specific case cited in MarketWatch (published Mar 31, 2026) notes two discrete features: a 75/25 division of the trust, and retirement accounts placed inside the trust’s ownership. Those facts combine distribution-equality choices with retirement-account tax dynamics; the intersection is where disputes often arise. Historically, many testators default to either equal splits among heirs or leave assets outright to a surviving spouse. A 75/25 split departs from a 50/50 or outright-spouse approach, and it can create perceived unfairness among beneficiaries, particularly when retirement assets—which carry deferred tax liabilities—are pooled into the trust rather than assigned by account beneficiary designation.
The 2019 SECURE Act altered inherited-IRA distribution rules for many non-spouse beneficiaries by generally imposing a 10-year distribution horizon for most inherited IRAs (SECURE Act, 2019). That statutory change is relevant because placing an IRA into a trust may cause a non-spouse beneficiary to be treated as a "designated beneficiary" or not, depending on trust drafting; the tax outcome can therefore be materially different than leaving an IRA outright to a spouse or to a named non-spouse. Separately, state probate and trust litigation patterns show high variability: litigation tends to increase when distributions favor one family branch over another or when estate liquidity is insufficient to meet taxes and expenses. That combination of tax law and family dynamics explains why professional advisors often recommend clear beneficiary designations and analysis of tax-efficiency when retirement assets are part of an estate plan.
The decision to put IRAs into a trust also invokes fiduciary duties for trustees. Trustees who manage IRAs and other retirement accounts must balance investment objectives, distribution timing, and tax optimization across disparate beneficiaries. For institutional fiduciaries or family offices, standard operating procedures often require scenario modeling—projected tax drag, RMD timing, and liquidity stress testing—to anticipate conflicts. For retail advisors, the absence of that modeling can create downstream value leakage for beneficiaries.
Primary data from the MarketWatch example are concrete: 75% allocation to spouse, 25% to sister, with "everything, including his IRAs, placed in the trust’s name" (MarketWatch, Mar 31, 2026). Those three data points are the levers we analyze. First, allocation percentages: a 75/25 split allocates 3x more nominal share to one beneficiary versus another, which matters when different asset classes are unevenly represented. For instance, if the trust contains concentrated stock positions or tax-deferred retirement assets, the 75% residual claim does not equate to equivalent after-tax economic benefit across beneficiaries.
Second, the inclusion of IRAs in trust ownership changes tax incidence. Under pre-2019 rules, IRA stretch strategies allowed some non-spouse beneficiaries to take distributions over their life expectancy; the SECURE Act curbed that for many non-spouse beneficiaries via its 10-year rule (SECURE Act, 2019). A trust that is not drafted to qualify as a conduit or see-through trust may disqualify beneficiaries from favorable distribution regimes, forcing accelerated recognition of taxable income and increasing the tax burden relative to leaving an IRA outright to a spouse.
Third, liquidity and RMD mechanics: when an IRA is owned by a trust, the trustee often must make distributions to beneficiaries in cash to satisfy trust terms, which can require selling assets. That can create forced selling, realized gains, or unfavorable timing relative to market cycles. From a numbers perspective, even modest tax-rate differences compound over time; for example, a hypothetical $500,000 IRA subject to distributions over 10 years versus a spousal rollover could leave tens of thousands of dollars of value on the table due to marginal income-tax effects and lost tax-deferred growth. Trustees need to model marginal tax rates for each beneficiary and the expected timing of distributions.
Regulatory guidance also matters. The IRS has long recognized that a surviving spouse may treat an inherited IRA as their own, which preserves tax-deferred status and flexible RMD timing; whether that option survives depends on how the account beneficiary designation and trust language interact. For advisors, reconciling the account-level beneficiary form with trust language is a recurring compliance task.
For wealth managers, family offices and custodial banks, the prevalence of IRAs held inside trust entities has operational consequences. Custodians must implement account-level controls and reporting that recognize trust ownership, and they must provide trustees with taxable-event projections. Firms that service high-net-worth clients will see demand for scenario analysis, particularly since intra-family allocations like 75/25 can increase the probability of contested estates. Product design—such as trustee-led managed-distribution options—may become more salient as clients look for ways to reduce friction and perceived unfairness.
For legal practices that specialize in estate litigation, these arrangements can lead to disputes over intent and fairness. Allocation percentages that deviate from commonly expected splits, combined with opaque trust provisions on how IRAs are to be distributed, raise the likelihood of challenge. Our conversations with estate litigators indicate that contested trust litigation is most likely where (1) allocations are asymmetric, (2) illiquid assets dominate the estate, and (3) communication with beneficiaries is minimal. These factors map directly to higher legal costs and potential value erosion.
For tax advisory and accounting firms, trust-owned retirement assets increase advisory demand. Trustees and beneficiaries seek clarity on taxable distributions and the interaction with federal rules such as the SECURE Act, state income tax differences, and potential federal legislative changes. The compounding effect of accelerated distributions, especially if beneficiaries are in higher marginal tax brackets, can materially change after-tax wealth transfer outcomes.
Key risks in a 75/25 trust allocation that includes IRAs are tax inefficiency, liquidity shortfalls, and litigation. Tax inefficiency arises when a trust prevents a spouse from treating an IRA as their own or when a trust structure triggers accelerated distributions for non-spouse beneficiaries under the 10-year SECURE Act rule. Liquidity shortfalls can force trustees to sell appreciated assets at inopportune times to meet distribution or estate-expense obligations, which can crystallize capital gains and shift value away from intended beneficiaries. Litigation risk rises if beneficiaries perceive that the decedent’s intent was unclear or unfair, particularly in blended-family situations.
Operational and compliance risk is non-trivial. Trustees must reconcile beneficiary designations with trust language, maintain accurate valuation dates, and follow state-specific trust administration rules. Mistakes or ambiguity in any of these steps can lead to fiduciary breach claims. From a governance standpoint, institutional trustees typically mitigate these risks through detailed trust-acceptance protocols, pre-acceptance modeling, and clear communication plans with beneficiaries.
Policy risk also exists. Future legislative changes—such as modifications to the SECURE Act's 10-year rule or changes in tax rates—could alter the calculus for whether an IRA should be placed in a trust. While predicting legislative shifts is speculative, advisors must stress-test plans against reasonable permutations of tax policy changes to avoid surprise outcomes.
In the near term, expect continued demand for targeted analysis of trust-owned retirement accounts. High-net-worth households and their advisors will increasingly evaluate the trade-off between control (using trusts to control distributions) and tax-efficiency (leaving IRAs outright or designing conduit trusts). Firms that offer integrated legal-tax-investment modeling capabilities will have a competitive advantage. Over the medium term, litigation trends and custodial capabilities will shape market practices: if trust-owned IRAs regularly generate contested cases or notable tax penalties, best-practice guidance will pivot back toward clearer beneficiary designations and asset-level equalization strategies.
Practitioners should monitor three measurable indicators: (1) frequency of contested trust filings (litigation rates), (2) number of custodial account exceptions for trust-owned retirement accounts, and (3) changes in IRS or Treasury guidance affecting see-through/trust beneficiary treatment. These metrics will help quantify whether the current spike in complex trust structures is sustainable or self-correcting.
From a contrarian standpoint, the reflex to aggregate all assets into a single trust—"everything, including IRAs, in trust"—is often a suboptimal trade when the objective is net economic equality across beneficiaries. A more tax-efficient approach can be to leave tax-deferred accounts (IRAs) to the spouse outright, allowing spousal rollover treatment and preserving deferral, while using taxable-account transfers or life-insurance equalization to achieve the desired economic split. This separates tax exposure from equitable allocation and reduces the complexity trustees must manage. That strategy runs contrary to the one-size-fits-all consolidation instinct but can increase after-tax wealth for the intended recipients without sacrificing control mechanisms that trusts provide for non-retirement assets.
Furthermore, trustees and advisors should quantify the "value at risk" from trust-owned IRAs by running at least two scenarios: (A) trust qualifies as a conduit/see-through trust for beneficiary distribution purposes, and (B) trust fails that test and triggers accelerated taxable distributions. The delta between scenarios often justifies reallocating account ownership or redesigning trust language. We recommend scenario modeling as standard due diligence for any trust that contains retirement assets; failing to do so leaves meaningful wealth-transfer risk unaddressed. For further reading on governance and wealth-transfer modeling, see our practice notes on estate planning and wealth transfer strategies.
Q: Can a spouse be disinherited by placing IRAs in a trust?
A: Generally no; a spouse retains certain rights under federal and state law, but the economic outcome can be equivalent to partial disinheritance if the trust's structure prevents spousal rollover or subjects the IRA to accelerated distributions. Whether that occurs depends on trust drafting and account-level beneficiary designations.
Q: Will putting IRAs in a trust always increase estate litigation risk?
A: Not always, but it can. Litigation risk rises when allocation percentages are asymmetric (e.g., 75/25), when trust terms are ambiguous, or when trust assets are illiquid. Clear communication and pre-death documentation of intent materially reduce litigation probability.
Q: What is a practical alternative to placing IRAs in a trust?
A: A common alternative is to leave IRAs to the spouse outright and equalize other estate assets (taxable accounts, life insurance) to match the intended split. This preserves tax deferral for the spouse while achieving economic parity among beneficiaries.
A 75/25 trust allocation that places IRAs in the trust raises measurable tax, liquidity and litigation risks; advisors should model distribution outcomes under current law and consider alternatives that preserve tax deferral for spouses while accomplishing equitable transfers. Clear drafting, account-level beneficiary alignment, and scenario analysis are essential.
Disclaimer: This article is for informational purposes only and does not constitute investment advice.
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