Testamentary Charitable Remainder Unitrust (T-CRUT)

This is the closest thing left to the stretch IRA, and it costs you the remainder. If you have a large traditional IRA, genuine charitable intent, and an heir who should not receive a seven-figure account over ten years, name a testamentary CRUT as the beneficiary instead of the person. The trust is created by your will or revocable trust and comes into existence only at your death.

The mechanics are elegant. Your IRA pays into the CRUT, which is tax-exempt, so the entire balance lands intact—no ten-year compression, no bracket spike, nothing withheld. The trust then pays your heir a fixed percentage of its value, revalued annually, for life. Whatever remains at their death goes to charity, and your estate takes a charitable estate tax deduction for the present value of that remainder. Compare it to the default: a $3 million IRA left outright to a child in peak earning years is emptied within ten years, much of it taxed at 37% federal plus state. The same $3 million inside a CRUT pays out over forty years, at lower marginal rates, on a corpus that was never reduced by tax in the first place.

Two statutory constraints decide eligibility: first, the payout must be at least 5%, and the present value of the charitable remainder must be at least 10% of the funding value at inception ( IRC §664). For a lifetime interest, a young beneficiary blows through that ceiling—the longer they are expected to live, the less the charity is projected to receive—so a beneficiary in their twenties or thirties often fails the test outright. The workaround is a term-of-years CRUT capped at 20 years, which passes comfortably. Run the actuarial numbers before you name the trust, not after. Second, understand what your heir actually receives: unitrust payments are taxed to them under the four-tier rules, and because retirement money is ordinary income, they will pay ordinary rates on essentially every dollar. You have not eliminated their tax—you have spread it across a lifetime and stopped it compounding against them.

Acknowledge the core trade-off: the charity is not incidental; it is a real beneficiary receiving real money that your grandchildren will not. If you have no charitable intent, do not contort yourself into this structure—take the ten-year distribution, spread it deliberately across low-income years (section “Tax Planning for Inherited IRA”), and move on. And if the intent is purely charitable, skip the trust: name the charity directly as the IRA beneficiary — a tax-exempt charity pays no income tax on the distribution, your estate takes a full charitable deduction, and your heirs inherit the taxable assets with a basis step-up instead (section “Charity And Taxes”).