Episode summary
Talking Trusts & Estates for Advisors: Pros and Cons of Putting an Inherited IRA Into a CRUT
Summary
The host and a guest discuss when an inherited IRA might be placed inside a charitable remainder unitrust, or CRUT, as a way to restore some tax deferral after the SECURE Act and SECURE 2.0 changed inherited IRA rules. The guest argues that the old world of stretching distributions over a beneficiary’s lifetime has largely been replaced for most nonspouse heirs by a 10-year payout window, which can create faster tax recognition and less planning flexibility.
A CRUT can change that outcome if the client has real charitable intent. The guest explains that the trust pays an income beneficiary over time while the remainder ultimately goes to charity, creating tax deferral inside the trust and, in some cases, allowing more after-tax value to be preserved across both the beneficiary and the charity than a direct inherited IRA transfer.
The guest says a CRUT tends to work best when the beneficiary has a long runway, the assets can compound at positive returns, and the charity is expected to exist for decades. Without charitable intent, a meaningful beneficiary need for long-term income, and a reasonable investment horizon, the strategy is unlikely to beat a traditional inherited IRA on an after-tax basis.
Key takeaways
- The guest says SECURE and SECURE 2.0 compressed most inherited IRA payouts into a 10-year window, reducing the old lifetime stretch advantage.
- The guest says a CRUT can restore tax deferral and potentially stretch distributions for 30 years or even a beneficiary’s lifetime.
- The guest argues CRUTs can outperform a direct inherited IRA only when there is charitable intent, a long beneficiary runway, and positive investment assumptions.
- The guest says the charity should be one that the client cares about and expects to still exist in 20 or 30 years.
- The guest says a CRUT is a poor fit if heirs need immediate liquidity after death.
Notable quotes
“Outside of spouses, we really now have 10 years to distribute these accounts”
“so, if you break that down, it's a charity that gets the remainder of the trust”
“You can pick a 30-year time horizon. You could pick the remainder of their life”
“we can leave more after tax dollars to our beneficiaries and the charity combined than if we leave an IRA directly to a individual beneficiary”
How the episode opens
Hi, I'm Susan Lip, editor-inchief of Trust and Estates, and I'm speaking with Jamie Hopkins, CEO of Binmar Trust Advisors and Chief Wealth Officer at Binmire Trust. Today, we'll discuss the benefits of making a lifetime stretch of an inherited individual retirement account through a charitable remainder unit trust. This is an issue because the 2019 secure act significantly limited the availability of stretch treatment with a few exceptions.
So let's let's start from the beginning uh with the secure act. Jamie, why have the secure act and secure 2.0 made inherited IRA planning more challenging? Yeah, and I think hopefully most advisers are are up to speed on this at this point, but you know, pre-secure act, we really had this ability to stretch IRA distributions, retirement account distributions over the life uh often of the beneficiary receiving it.
There were caveats to that, but fast forward uh really we've condensed that time frame down. Outside of spouses, we really now have 10 years to distribute these accounts. And that's a very different world.
we might have gone from 30 plus years of tax deferral to you know a 5 to 10 year period of tax deferral and so the planning around this is more important where pre-secure act the notion was you leave it to them they stretch it and you don't do a whole lot else since then we have to look at trusts and charities and who's the right beneficiaries and all different other types of setups which leads us into this article and conversation
And can you describe the basics of a crut. — Yeah. So, uh, cruts and crats and gruts and grats, the fun names that we have in our legal world. But, uh, you know, when you say the whole thing out loud, it makes a little bit more sense, which is a charitable remainder unit trust.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- secure act
- secure 2.0
- inherited ira planning
- crut basics
- tax deferral
Companies and tickers mentioned
- Bryn Mawr Trust
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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