John E. Chapman Chief Executive OfficerCan a Charitable Remainder Trust Replace the Stretch IRA?
The SECURE Act of 2019 ended a quiet but powerful estate planning tool. Before it passed, a child or grandchild who inherited your IRA could take distributions over their lifetime, allowing the account to compound for decades while spreading the tax hit over many years. That’s gone now for most heirs. In its place: a mandatory 10-year liquidation window, which tends to dump income into the years when your kids are already earning the most.
One legitimate workaround has gotten more attention in recent years, naming a Testamentary Charitable Remainder Unitrust (CRUT) as your IRA beneficiary. Instead of forcing a lump distribution into your heir’s tax return, the trust receives the IRA, then pays out a percentage of its assets annually over your heir’s lifetime. The tax hit gets spread out. Whatever remains at the end goes to charity.
This isn’t for everyone, and the math needs to work
The IRS requires that at least 10% of the trust’s projected value ultimately reach charity, meaning the structure only works if the numbers support it. Annual payouts must fall between 5% and 50% of trust assets. Naming a very young beneficiary often blows up the 10% test because their long life expectancy means too little is expected to reach the charity; a fixed term can sometimes solve that.
The more honest limitation is the wealth-transfer trade-off. Whatever reaches charity doesn’t reach your family. For clients whose only goal is maximizing what heirs receive, the plain 10-year rule often wins. A CRUT earns its place when charitable intent is genuine, not retrofitted, and when the income-smoothing benefit over a lifetime meaningfully outweighs the 10% going to the charitable remainder.
The other thing worth knowing is that distributions pay out ordinary income first. An IRA flowing into a CRUT could mean your heirs receive fully taxable income for many years before ever seeing preferential rates. That’s not a dealbreaker, but it should be modeled rather than assumed away.
The bottom line
A CRUT can be an efficient solution at the intersection of income planning, tax management, and charitable giving. But it rewards careful analysis, not enthusiasm. If you have a large retirement account, an heir in a high tax bracket, and a charity you genuinely care about, it’s worth running the numbers.
For more information on a Charitable Remainder Trust (CRUT), please visit irs.gov. All tax data sourced from IRS.gov.
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