Let’s talk about something nobody wants to talk about, but really needs to.

I’ve seen too many investors pour time, strategy, and money into building up their self-directed IRA only to leave their loved ones in the dark when the unexpected happens. It’s one thing to prepare your portfolio for growth. It’s another to make sure it won’t turn into a legal or tax mess for your family.

So, what actually happens to your SDIRA when you pass away? Here’s what you need to know (and do).

Your Beneficiaries Take Over, But It’s Not Automatic

If you’ve filled out your IRA beneficiary form properly, then your IRA doesn’t go through probate. It passes directly to the person or people you named. That’s the good news.

The catch? SDIRAs aren’t as simple as selling a few shares of an index fund. If your account holds rental properties, private loans, or crypto, your beneficiaries may have no idea what to do with it or what it’s worth.

So while the legal transfer might be smooth, the practical handoff can be a disaster unless you’ve prepared for it in advance.

Traditional vs. Roth: Taxes Work Differently

The type of SDIRA matters. If it’s a traditional account, your beneficiary will have to start taking required minimum distributions and pay income tax on them. If it’s a Roth, qualified distributions are tax-free, which can make it a powerful wealth transfer tool, that is if everything is structured properly.

If You Have Complex Assets, Leave a Paper Trail

Here’s a big mistake I see: someone owns a property in their SDIRA or made a private loan, but they’re the only one who knows the details.

That doesn’t just frustrate your heirs, but it can also cause delays, missed income, or IRS penalties if the account isn’t handled properly.

Do yourself (and your loved ones) a favor: keep updated records, label your documents clearly, and write a simple one-pager that explains each investment, who manages it, and how to handle it if something happens to you.

This is where a Checkbook IRA with a Trust or LLC is invaluable. When you are either a co-trustee or co-manager, it is often used, meaning they can manage the Trust or LLC as you would. If you do not have either a successor manager or a trustee, one can be named. They would have the right to manage the Trust or LLC in case of your demise. This is particularly important if you have investments that require ongoing attention, such as active Cryptocurrency Trading accounts or rental properties.  The proof of the ability to manage those investments can be cumbersome and expensive if you don’t have a clear succession plan.

Custodians Matter More Than You Think

Not all custodians are equipped to handle death distributions quickly, especially for non-traditional assets. Some can take months to process paperwork, leaving your heirs in limbo.

Ask your custodian what their process looks like if an account holder passes. What documents are needed? How long does it take? Choosing a custodian with strong estate support can make a world of difference.

A Few Things I’ve Done to Make This Easier

Personally, I’ve:

• Named primary and contingent beneficiaries (and I double-check them yearly)
• Created a short “IRA Cheat Sheet” that my spouse can follow
• Made sure my estate attorney is looped in on what’s inside the SDIRA
• Picked a custodian that has a clear, documented estate transfer process
• Have my assets in self-managed accounts with successors

If you’re investing in alternative assets, your estate planning needs to keep up. Otherwise, all that careful strategy could become a stressful burden for your family.

Something Worth Doing Now

Take a few minutes this week to log in to your custodian’s portal and check your beneficiary form. Is it filled out correctly? Is it up to date? Many people forget this step, or assume it’s covered by their will. It’s not.

And if your SDIRA assets would confuse someone who isn’t you? Write a simple summary. One page of clear guidance today could save your family a year of stress tomorrow. Don’t be afraid to hire a good Trust or elder care attorney to make sure you have everything covered.