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How Charitable Remainder Trusts (CRUTs & CRATs) Can Help Your Heirs Avoid the 10-Year IRA Tax Trap
The SECURE Act's 10-year rule has fundamentally changed retirement planning for families, forcing most non-spouse beneficiaries to drain inherited IRAs within a decade—often during their peak earning years when tax rates hit hardest. But there's a strategic alternative that can extend distributions, reduce your heirs' tax burden, and support causes you care about: naming a Charitable Remainder Trust (CRT) as your IRA beneficiary.
If you're a mid-career professional building wealth for your family's future, understanding this strategy could save your heirs tens of thousands in taxes while leaving a meaningful charitable legacy.
📊 Key Takeaways
✅ Charitable Remainder Trusts (CRUTs and CRATs) can extend inherited IRA distributions up to 20 years or a beneficiary's lifetime—far beyond the SECURE Act's 10-year rule
✅ Spreading distributions over more years keeps heirs in lower tax brackets, avoiding the tax spike that comes with forced 10-year withdrawals
✅ You receive an immediate income tax deduction when creating the trust, and the remaining balance eventually goes to your chosen charity
✅ The strategy provides asset protection from creditors and divorce while reducing potential estate tax liability
✅ CRTs are tax-exempt entities, allowing investments to grow without immediate capital gains tax
Understanding the 10-Year IRA Distribution Problem
Before the SECURE Act of 2019, beneficiaries could "stretch" inherited IRA distributions over their entire lifetimes, minimizing annual tax hits and maximizing tax-deferred growth. That strategy disappeared for most beneficiaries on January 1, 2020.
The Current Landscape: SECURE Act Rules for 2025
Under current law, most non-spouse beneficiaries who inherit an IRA must withdraw all funds within 10 years of the account owner's death (IRS). Even more challenging, if the original owner had already started taking Required Minimum Distributions (RMDs), beneficiaries must take annual RMDs during that 10-year period AND completely empty the account by year ten (Schwab).
The tax consequences can be severe. Imagine you're in your peak earning years—perhaps your kids are heading to college, you're finally hitting your stride professionally, and your income is at its highest. Now add $50,000, $100,000, or more in required IRA distributions each year. These withdrawals count as ordinary income, potentially pushing you into the 32% or even 37% federal tax bracket, plus state taxes.
A real-world scenario: A beneficiary who inherits a $500,000 IRA might face taking $50,000 annually for 10 years. If they're already earning $150,000, that additional income could easily push them from the 24% federal bracket into the 32% bracket—costing thousands more in taxes annually compared to a slower distribution schedule.
Who's Exempt from the 10-Year Rule?
Five categories of "Eligible Designated Beneficiaries" can still stretch distributions (Kiplinger):
🔹 Surviving spouses (who can treat the IRA as their own)
🔹 Minor children of the account owner (until age 21, then the 10-year rule applies)
🔹 Disabled individuals meeting IRS criteria
🔹 Chronically ill individuals unable to perform daily living activities
🔹 Individuals not more than 10 years younger than the deceased
For everyone else—adult children, siblings, nieces, nephews, and friends—the 10-year rule applies in full force.
What Are CRUTs and CRATs? The Basics
Charitable Remainder Trusts come in two primary varieties, both offering powerful tax and estate planning benefits when named as IRA beneficiaries.
Charitable Remainder Unitrust (CRUT) 💡
A CRUT pays your heirs a percentage of the trust's value each year, recalculated annually based on the current market value (IRS). The payout rate must be at least 5% but no more than 50% of the trust's annual value (The Tax Adviser).
How it works: If your CRUT is valued at $500,000 and has a 6% payout rate, it distributes $30,000 that year. If the trust grows to $550,000 the following year, the distribution increases to $33,000. Conversely, if the market declines, distributions adjust downward.
Key advantage: CRUTs offer inflation protection and growth potential for beneficiaries, since distributions increase as the trust value grows.
Charitable Remainder Annuity Trust (CRAT) 📈
A CRAT pays a fixed dollar amount based on the initial trust value, determined when the trust is created (IRS). Like CRUTs, the payout must be at least 5% but no more than 50% of the initial fair market value (The Tax Adviser).
How it works: If your CRAT is initially valued at $500,000 with a 6% payout rate, it distributes exactly $30,000 every year regardless of investment performance or market fluctuations.
Key advantage: CRATs provide predictable income for budgeting purposes, unaffected by market volatility.
Important distinction: CRATs cannot accept additional contributions after initial funding, while CRUTs can receive additional assets (The Tax Adviser).
How CRTs Help Your Heirs Inherit Your IRA More Tax-Efficiently
The Power of Extended Distributions
When you name a Charitable Remainder Trust as your IRA beneficiary, you fundamentally change the distribution timeline for your heirs. Instead of the 10-year forced withdrawal, the CRT can make payments to your beneficiaries for up to 20 years or even their entire lifetime (Baird Trust).
Here's how the mechanics work:
1️⃣ Tax-Free Transfer to the Trust: When you pass away, your IRA is distributed to the CRT without triggering immediate income tax. The trust, as a tax-exempt entity, receives the funds tax-free (CMBA News).
2️⃣ Strategic Annual Distributions: The CRT makes regular payments to your designated beneficiaries (typically your children or other heirs) based on either a fixed percentage (CRUT) or fixed amount (CRAT). These distributions are taxed as ordinary income to the beneficiaries—just like traditional IRA withdrawals—but spread over many more years (Mesirow).
3️⃣ Tax-Deferred Growth: Inside the CRT, investments can grow without immediate capital gains tax, dividends are tax-deferred, and interest accumulates tax-free. This allows the trust assets to potentially grow larger than they would in a taxable account, providing more income for your heirs over time (Notre Dame Gift Planning).
4️⃣ Charitable Remainder: After the trust term ends (whether a set number of years or at the end of a beneficiary's life), the remaining balance goes to your chosen qualified charity (IRS).
Keeping Your Heirs in Lower Tax Brackets 💰
The most significant advantage for many families is tax bracket management. Let's compare two scenarios:
Scenario A: Direct IRA Inheritance (10-Year Rule)
- Beneficiary inherits $500,000 IRA
- Must withdraw approximately $50,000+ annually for 10 years
- Beneficiary's base income: $120,000
- Total annual income during distribution years: $170,000+
- Result: Pushed into 32% federal tax bracket, paying significantly higher taxes
Scenario B: CRT as IRA Beneficiary (20-Year Distribution)
- Same $500,000 IRA transferred to CRUT with 5% payout
- Beneficiary receives $25,000 annually for 20 years
- Beneficiary's base income: $120,000
- Total annual income: $145,000
- Result: Remains in 24% federal bracket, saves thousands in taxes annually
By spreading the income over twice as many years at a lower annual amount, your heirs could save 8 percentage points (32% vs. 24%) on a substantial portion of the distributions—potentially $40,000 or more in total tax savings over the distribution period, depending on the account size and their individual circumstances.
Additional Benefits Beyond Tax Savings
Immediate Income Tax Deduction for You ✅
When you create and fund a CRT (or designate it as your IRA beneficiary in your estate plan), you receive an immediate income tax deduction based on the present value of the assets that will eventually go to charity (The Tax Adviser). This deduction is calculated using IRS actuarial tables and can provide significant tax relief in the year you establish the trust.
Unused deductions can be carried forward for up to five years, allowing you to maximize the tax benefit even if your income varies (The Tax Adviser).
Estate Tax Reduction 🏆
The present value of the charitable remainder—the portion expected to ultimately go to charity—is deducted from your taxable estate, potentially reducing federal and state estate tax liability (Baird Trust). This is particularly relevant as estate tax exemptions are scheduled to sunset at the end of 2025, potentially lowering the exemption and exposing more estates to taxation (Baird Trust).
Asset Protection 🛡️
Assets held within a CRT are generally protected from creditors, divorce proceedings, and spendthrift beneficiaries—protections that don't exist with a direct inherited IRA distribution (Baird Trust). For families concerned about a child's financial management skills, potential divorce, or creditor issues, this protection adds valuable peace of mind.
Meaningful Charitable Legacy 🎯
Beyond the financial benefits to your family, the CRT strategy allows you to support causes and organizations you care about. The remaining trust balance—after providing for your heirs—goes to qualified charities of your choice, which could include a public charity, a donor-advised fund, or even a family foundation (Baird Trust).
This creates a lasting legacy that reflects your values while simultaneously benefiting your family—a true win-win for many families.
Key Requirements and Considerations
IRS Requirements for CRTs
To qualify for the tax benefits, your CRT must meet specific IRS requirements:
📋 Minimum 5%, Maximum 50% Annual Payout: The trust must distribute at least 5% but no more than 50% of its value (CRUT) or initial value (CRAT) annually to beneficiaries (The Tax Adviser).
📋 10% Charitable Remainder Rule: At least 10% of the initial net fair market value must actuarially be expected to pass to charity, calculated using IRS Section 7520 rates (The Tax Adviser).
📋 Maximum 20-Year Term or Lifetime: If you choose a term of years (rather than lifetime payments), it cannot exceed 20 years (The Tax Adviser).
📋 Irrevocable Structure: Once established, CRTs are irrevocable and cannot be undone or significantly modified (IRS).
Who Benefits Most from This Strategy?
CRTs as IRA beneficiaries work particularly well for:
✔️ High-net-worth individuals with substantial IRAs and charitable inclinations
✔️ Families in high tax brackets whose heirs would face significant tax liability under the 10-year rule
✔️ Parents of adult children who are not "Eligible Designated Beneficiaries" under the SECURE Act
✔️ Individuals with estate tax concerns, especially as exemptions potentially decrease after 2025
✔️ Those who want asset protection for heirs while providing income support
✔️ Families with philanthropic values seeking to balance family support and charitable giving
Important Limitations and Considerations ⚠️
While powerful, this strategy isn't right for everyone:
❗ Complexity and Cost: CRTs require professional legal drafting, ongoing administration, annual tax filings (Form 5227), and trustee management—all of which involve costs that may not be justified for smaller IRAs.
❗ Reduced Family Inheritance: Because a significant portion ultimately goes to charity, your heirs will receive less total wealth than if they inherited the IRA directly (though the tax savings may partially offset this difference).
❗ Irrevocability: Once established, you cannot change your mind or substantially modify the trust terms, limiting future flexibility.
❗ Charitable Commitment Required: This strategy only makes sense if you genuinely want to support charitable causes—the tax benefits alone shouldn't drive the decision.
❗ Professional Guidance Essential: Given the complexity of CRTs, SECURE Act rules, and tax implications, this strategy requires careful planning with qualified estate planning attorneys, tax advisors, and financial planners.
Is This Strategy Right for Your Family?
As a mid-career professional building wealth for your family's future, the CRT strategy deserves consideration if:
✅ You have a substantial IRA balance (typically $500,000+)
✅ Your heirs are likely to be in high tax brackets when they inherit
✅ You have genuine charitable intentions and want to support causes you care about
✅ You're concerned about estate tax exposure as exemptions potentially decrease
✅ You want to provide asset protection for your heirs
✅ You understand and accept the complexity and costs involved
Taking Action: Next Steps 🚀
If you're intrigued by the potential of using a Charitable Remainder Trust to help your heirs inherit your IRA more tax-efficiently, here's how to move forward:
1. Assess Your Situation: Review your current IRA balance, projected growth, and your heirs' likely tax situations. Consider your charitable intentions and whether this dual-purpose strategy aligns with your values.
2. Run the Numbers: Work with a financial advisor to model the tax impact of direct inheritance vs. CRT inheritance based on your specific circumstances. Calculate potential tax savings and compare total family benefits under each scenario.
3. Consult with Specialists: Engage an estate planning attorney experienced with CRTs and a tax advisor who understands the SECURE Act implications. This is not a DIY strategy—professional guidance is essential.
4. Consider Your Charitable Goals: Identify the charities or causes you'd want to support. You can name specific organizations, establish a donor-advised fund, or even create a family foundation as the charitable beneficiary.
5. Integrate with Your Overall Plan: Ensure the CRT strategy fits cohesively with your broader estate plan, including other assets, life insurance, and your overall wealth transfer goals.
Final Thoughts: Balancing Family and Philanthropy
The SECURE Act's 10-year rule has created a genuine tax challenge for families inheriting IRAs. But as with most tax law changes, creative planning strategies emerge to help families adapt.
Charitable Remainder Trusts offer a powerful way to extend distributions beyond the 10-year limit, reduce your heirs' tax burden, and support causes that matter to you—all while providing asset protection and potential estate tax savings. It's not the simplest strategy, and it's not right for every family, but for those with substantial IRAs and charitable inclinations, it can be a game-changer.
The key is understanding your options, running the numbers for your specific situation, and working with experienced professionals who can help you design and implement a strategy that truly serves your family's interests and your personal values.
Your legacy isn't just about the wealth you leave behind—it's about the tax efficiency, protection, and purpose you build into that wealth transfer.
Ready to Explore This Strategy for Your Family?
If you're a mid-career professional navigating expanding income, college planning for your kids, and competing financial priorities—and you've never worked with a financial advisor before—now is the perfect time to start.
At Balanced Life Planning, I help families like yours make strategic decisions about retirement accounts, estate planning, and tax-efficient wealth transfer so you can provide for your heirs while supporting the causes you care about.
Schedule a complimentary consultation today to discuss whether a Charitable Remainder Trust strategy makes sense for your IRA and your family's future.
About the Author
Tim Witham, CFP®
Founder
Balanced Life Planning
I specialize in helping mid-career professionals with expanding incomes navigate the competing priorities of college planning, retirement preparation, and wealth transfer strategies. If you're approaching major financial decisions and want a trusted advisor to help you make informed choices, I'm here to help.
Sources & References
1. [IRS - Charitable Remainder Trusts](https://www.irs.gov/charities-non-profits/charitable-remainder-trusts)
2. [IRS - Retirement Topics: Beneficiary](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary)
3. [Baird Trust (November 2024) - Charitable Remainder Trusts as IRA Beneficiaries](https://www.bairdtrust.com/news-insights/2024/11/charitable-remainder-trusts-as-ira-beneficiaries/)
4. [The Tax Adviser (September 2025) - Planning with Charitable Remainder Trusts](https://www.thetaxadviser.com/issues/2025/sep/planning-with-charitable-remainder-trusts/)
5. [Schwab (October 2025) - Inherited IRA Rules & SECURE Act 2.0 Changes](https://www.schwab.com/learn/story/inherited-ira-rules-secure-act-20-changes)
6. [Kiplinger (September 2025) - Inherited IRA Rules Every Beneficiary Should Know](https://www.kiplinger.com/taxes/inherited-ira-four-things-beneficiaries-should-know)
7. [CMBA News (December 2024) - Tax Efficient Charitable Planning With An IRA](https://www.clemetrobar.org/?pg=CMBABlog&blAction=showEntry&blogEntry=117883)
8. [Mesirow (February 2024) - Leaving Your IRA to a Charitable Remainder Unitrust](https://www.mesirow.com/wealth-knowledge-center/leaving-your-ira-charitable-remainder-unitrust-can-benefit-your-heirs-and)
9. [Notre Dame Gift Planning (2023) - Using an IRA to Establish a Charitable Remainder Trust](https://giftplanning.nd.edu/impact-stories/maximizing-your-legacy-using-an-ira-to-establish-a-charitable-remainder-trust-for-your-children/)
10. [Mercer Advisors - Using a Charitable Remainder Trust to Re-Stretch Inherited IRAs](https://www.merceradvisors.com/insights/trust-estate/using-a-charitable-remainder-trust-to-re-stretch-inherited-iras/)
DISCLOSURE: The information contained herein has been obtained from sources believed to be reliable but cannot be guaranteed accuracy. Balanced Life Planning is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only, are subject to change from time to time and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks.