Using a Charitable Remainder Trust as Your IRA Beneficiary to Get Past the 10-Year Rule

Naming a charitable remainder trust as the beneficiary of your IRA lets the account pay out over your heir's lifetime instead of over ten years. The trust is tax-exempt, so it receives the full IRA balance without an immediate tax bill, then pays your beneficiary at least 5% a year for life or for a fixed term of up to 20 years. Whatever is left when the payments end goes to charity. The distributions are still ordinary income to your beneficiary, so this is not a way to convert IRA dollars into something gentler. It is a way to spread them out.

If you have a large IRA and adult children, you have probably already run into the problem. The SECURE Act took away the stretch, and the ten-year deadline can land squarely on your child's highest-earning decade. There is no do-over on a beneficiary form after you're gone, which is why this is worth deciding while you can still change it. I want to walk through how the trust actually works, and then be direct about who it fits, because the honest answer is that it fits fewer families than the strategy articles suggest.

What problem is this trying to solve?

The SECURE Act of 2019 ended the stretch IRA for most non-spouse heirs. A child who inherits your traditional IRA now has to empty it by the end of the tenth year after your death, and under the final regulations the IRS issued in July 2024, they also have to take annual distributions in years one through nine if you had already started your required minimum distributions. Those withdrawals stack on top of whatever your child already earns.

That compression is the whole issue. A $1.5 million IRA emptied over ten years pushes roughly $150,000 a year of extra ordinary income onto a beneficiary who may already be a surgeon, an engineer at Intel, or a partner in their forties. Much of it gets taxed at 32% to 37%, plus state tax. You can run your own balance through the inherited IRA calculator to see what the ten-year schedule would actually do to your heir's bracket before you decide whether any of this is worth the complexity. I wrote a fuller explanation of the deadline itself in my guide to the inherited IRA 10-year rule.

How does a charitable remainder trust as IRA beneficiary work?

You name the trust on your IRA beneficiary form, and the trust comes into existence at your death under your estate documents. Because a charitable remainder trust is a tax-exempt entity under Internal Revenue Code Section 664, the IRA can pay its entire balance into the trust with no income tax due at that moment. Nothing is lost to tax on the way in. From there, four things happen in sequence:

• The trust is funded. The full IRA balance moves into the CRT. No income tax is triggered on the transfer.
• Your beneficiary receives an annual payout. At least 5% and no more than 50% of trust assets each year, for that person's lifetime or for a fixed term of up to 20 years.
• The trust invests what it holds. Growth, dividends, and capital gains inside the trust are not taxed as they accrue, so the undistributed balance compounds without annual drag.
• Charity receives the remainder. Whatever is left when the payments end passes to the charity or donor-advised fund you named.

The ten-year rule never enters the picture, because it applies to designated beneficiaries who are individuals. A charitable remainder trust is not an individual. That is the entire mechanism, and it is worth being precise about it: you are not beating the rule, you are using a beneficiary the rule was never written to reach.

CRUT or CRAT?

Both are charitable remainder trusts, and the difference is how the annual payment is calculated. For an IRA-funded trust meant to last decades, the CRUT is almost always the right structure.

What are the 5% and 10% rules?

Two separate tests govern whether the trust qualifies at all, and they pull against each other. The payout must be at least 5% and no more than 50% of trust assets annually. At the same time, the actuarial value of what is projected to reach charity has to be at least 10% of the amount contributed, measured on the day the trust is funded.

That second test is what quietly rules out young beneficiaries. A 30-year-old income beneficiary has a long enough life expectancy that even a 5% payout, the lowest the law allows, leaves less than 10% projected for charity. The trust simply cannot be drafted. The math starts working somewhere in the beneficiary's forties and gets easier from there, so the structure is naturally aimed at adult children in mid-career, not grandchildren.

How are the payments taxed to your beneficiary?

Almost entirely as ordinary income. Section 664(b) sets a four-tier ordering rule: distributions carry out ordinary income first, then capital gains, then tax-exempt income, and only then tax-free principal. An inherited traditional IRA is ordinary income from top to bottom, so it fills the first tier and stays there for many years. Your beneficiary will pay ordinary rates on essentially every dollar they receive.

This is the part I want to be plain about, because it is where the strategy gets oversold. A CRT does not change the character of IRA money. It does not turn ordinary income into capital gains, and it does not make anything tax-free. What it changes is the schedule: instead of $150,000 a year for ten years, your beneficiary might see $60,000 a year for thirty. The dollars are taxed the same way. They just arrive in smaller annual slices, which is what keeps them out of the top brackets.

What does this look like with real numbers?

Take a $1.5 million traditional IRA and a 55-year-old daughter who already earns $250,000. Round numbers, one variable at a time.

Hypothetical illustration only, not a projection of actual results. Figures assume the stated inputs and returns, which are not guaranteed; your outcome depends on your contributions, investment returns, tax rates, and time horizon. Past performance does not guarantee future results.

Read the last two rows together, because they are the trade. The trust buys a gentler tax schedule and a longer runway. It pays for that with liquidity and with the possibility that an early death routes the whole balance to charity instead of to grandchildren. Neither of those is a footnote.

Who is this actually right for?

The fit is narrower than the strategy pieces let on. Michael Kitces ran the comparison against simply inheriting outright and found that for a beneficiary in their mid-thirties, the CRUT can take thirty to fifty years to catch up, because the charity's remainder and the trust's ongoing costs have to be overcome before the deferral pays off. Three things need to be true at the same time:

• You already want charity to receive something. At least 10% of the IRA is going to a charity by law, and in practice often 30% or more. If that money would otherwise have gone to your children and you would rather it did, stop here.
• The IRA is large enough that ten years hurts. Below roughly $1 million, the bracket compression usually is not severe enough to justify trustee fees, tax filings, and a Schedule K-1 arriving every spring for thirty years.
• Your income beneficiary is about 45 to 65. Younger and the 10% remainder test fails or the break-even runs past a normal lifetime. Older and there is not enough deferral left to be worth the structure.

When only the first is true, a simpler move usually wins. If the charitable intent is real but modest, name the charity directly for a slice of the IRA and leave the rest to your children outright. Charities pay no income tax on IRA money either, so every pre-tax dollar you leave them arrives whole. And if you are already 70½, a qualified charitable distribution moves money to charity out of the IRA during your lifetime without touching your taxable income at all.

What should you compare it against first?

Before drafting anything, put the CRT next to the two alternatives that solve the same problem with less machinery.

• Roth conversions during your lifetime. If you convert in your sixties at 24% and your child would have withdrawn at 35%, you have already won the bracket arbitrage, and your heir still gets ten years of tax-free growth with no trust attached. You can model a multi-year conversion ladder against your own brackets to see how much of the IRA you could move before Medicare surcharges bite.
• Splitting the beneficiary designation. Charity takes a fixed percentage of the IRA, children take the rest under the ten-year rule. Simple, free, changeable any time, and it captures most of the tax benefit when your charitable intent is moderate.
• Leaving the IRA to a spouse first. A surviving spouse is an eligible designated beneficiary and can roll the IRA into their own, restarting the clock entirely. The ten-year problem only reaches the next generation.

In practice I run all four paths side by side before anyone talks to an attorney about drafting. The comparison is arithmetic, and it costs nothing to check. What it usually shows is that the CRT is the right answer for a specific kind of family, and the wrong answer for everyone who just does not like the ten-year rule.

What has to happen to set one up?

The trust is drafted now and funded later, which means the order matters.

• Run the comparison against outright inheritance, Roth conversions, and a split designation, using your actual balance and your beneficiary's actual age and bracket.
• Have an estate attorney draft the testamentary CRT inside your will or revocable trust. This is specialist drafting; a general template will not clear Section 664.
• Choose the payout rate and the term, and confirm the 10% remainder test passes at the rates in effect.
• Name a trustee who will still be functioning in thirty years, which usually means an institution rather than a family member.
• Update the IRA beneficiary form. This is the step that gets missed, and it is the only one that actually controls where the money goes. The beneficiary form overrides your will. I have written about how often that catches families off guard.
• Re-check it every few years, and any time a beneficiary's health, marriage, or income changes materially.

Frequently asked questions

Primary sources worth reading directly: the IRS overview of charitable remainder trusts and required minimum distributions for IRA beneficiaries.