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Using a charitable remainder trust (CRT) to replace the stretch IRA


Prior to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, advisors had a good solution for the post-death distribution of tax-inefficient IRAs. Instead of making a lump-sum taxable distribution at death, IRA owners were able to “stretch” the distributions over the lives of their children, grandchildren or other beneficiaries. Consequently, assets were able to grow in a tax-deferred account potentially for decades after the IRA owner’s death. However, the SECURE Act prohibited the stretch IRA for nonqualified beneficiaries by capping the distribution period to 10 years after the owner’s death. Consequently, IRA beneficiaries can now be stuck with a very tax-inefficient asset after the owner’s death.

One possible solution to replace the stretch IRA is to name a charitable remainder trust (CRT) as the beneficiary of the IRA, and name the owner’s children as income beneficiaries of the trust. The annual income distributions can be made over the lives of the children, not just the 10-year period mandated by the SECURE Act. However, a number of factors are important to consider before implementing this strategy.


  • Several CRT options are available, such as fixed annuity payouts versus unitrust distributions. Also, unitrust distributions may have a “makeup” provision, allowing amounts not paid due to lack of trust income, being made up in the future with income excesses. Consequently, the makeup provision preserves the principal of the trust. The attractiveness of each alternative depends on the IRA owner’s specific situation.
  • The portion of the CRT that will be left to charity will help reduce the IRA owner’s taxable estate.
  • The CRT strategy is well accepted by the IRS. Simple CRT requirements are contained in Internal Revenue Code section 663.
  • If the grantor intends to leave assets to charity, the CRT can combine tax and philanthropic planning that complements the grantor’s overall financial plan.


  • The income beneficiary can receive only the specified payout, whether an annuity amount or a unitrust amount. Unlike IRA funds, principal from the CRT is not available for the income beneficiary’s use. If the grantor wishes to leave additional funds to a human beneficiary, the funds must come from other types of accounts, or from life insurance.
  • To qualify for CRT treatment, the charitable remainder interest must be at least 10% of the total trust value. For this test, the actuarial remainder value is based on the income beneficiary’s age. Consequently, an older beneficiary (e.g., a child) will meet this requirement more readily than a younger one (e.g., a grandchild).
  • The IRA value will be included in the grantor’s estate for purposes of calculating estate tax. The estate tax would be offset only partially by a charitable deduction for the value of the remainder interest. The estate tax associated with the income beneficiary’s interest must be paid by other assets of the estate.
  • There will be additional administrative costs associated with the creation and maintenance of a CRT, including legal and tax compliance fees.


A CRT named as a beneficiary to an IRA may be a solution to provide an income stream to a family member and a substantial deferred gift to a charity. This strategy will probably make sense only when the grantor has the dual goal of (1) providing only an income stream to an “older” beneficiary, and (2) making a significant deferred gift to charity. In other situations, it may not provide a better estate planning outcome when compared to the SECURE Act provisions. Coordination among advisors—legal, tax and wealth—should provide a good starting point in evaluating this strategy.

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