Couple reviewing their alternatives to a stretch IRA.
Elderly couple researching information online

Many people plan on giving their unspent IRA funds to children and grandchildren with the hope that this will provide an income for them for the rest of their lives. Until the SECURE Act took effect in 2020, this was possible through what was known as the Stretch IRA. A beneficiary of an inherited IRA could choose to receive distributions over their life expectancy, stretching out the payments for decades. This not only provided heirs an income for life but delayed income tax until distributions were made.

How the SECURE Act Affected the Stretch IRA

The SECURE Act significantly impacted retirement and estate planning. Among its provisions was the requirement of IRA beneficiaries, with a few exceptions, to receive all assets of inherited IRAs within ten years.  o longer could an inherited IRA generate a life income.

The Stretch IRA was popular because it saved income taxes, allowed continued tax-free growth of the IRA and provided a life income for beneficiaries. Now that it has been abolished, is there another strategy that offers similar benefits?

One strategy that provides the benefits of a Stretch IRA plus the added appeal of a substantial gift to charity is the testamentary charitable remainder unitrust (TCRUT).

The Testamentary Charitable Remainder Unitrust

Those who want to pass their IRAs to family and are charitably inclined may want to consider a Testamentary Charitable Remainder Unitrust (TCRUT).

A TCRUT is a tax-advantaged charitable trust that pays income to beneficiaries and then distributes the remaining trust principal to selected charity or charities at the trust’s termination. 

Because the TCRUT is tax-exempt, no income tax is paid on IRA assets when they are transferred to the TCRUT.  As with a Stretch IRA, payments to beneficiaries are taxed as they are received. 

The IRA owner names a trustee of the testamentary unitrust when setting up the trust. A corporate trustee, such as a bank, trust company or other financial organization, may be an option for a trustee.  A charitable organization, like Southwestern Medical Foundation, may also be willing to serve as trustee.

Next, the IRA owner selects the length of time the beneficiaries are to receive income. Not limited to the current 10-year IRA payout rule, the trust can make payments throughout the beneficiary’s life or for a period of up to twenty years.

In addition to selecting the length of time the beneficiaries will receive income, the IRA owner also selects the amount of income the beneficiaries will receive. The payment must be at least 5% of the trust’s value each year.

Finally, a charitable organization, or multiple organizations, is selected to receive the trust assets once the beneficiaries have received income for the specified length of time.

The TCRUT has the extra benefit of saving estate taxes and providing a generous charitable gift to the charity or charities of your choice.

The TCRUT is also Known as the Give-It-Twice Trust

The 20-year trust may be an attractive option to consider.  A 5% annual payout for twenty years will allow the beneficiaries to receive approximately the full value of the IRA over time.  At the end of twenty years, the charitable organization will likely receive a gift as large as the initial IRA.  This strategy enables the IRA to be given twice, once to family and again to charity.  This is truly a way to “stretch” your IRA.

The TCRUT is a powerful way to leverage the value of an IRA to provide for family and for charitable organizations that have been important to you.

Give Us a Call to Start the Charitable Planning Conversation

If you would like to know more about how a testamentary charitable remainder unitrust works, please give us a call.  We would be happy to talk by phone, exchange email or set up a time to have a video chat during this pandemic.

This information is not intended as tax, legal or financial advice.  Consult your financial advisor for information specific to your situation.

About the Author

Randal Daugherty headshot

Since 2000, Randy has served as Director of Planned Giving for Southwestern Medical Foundation and UT Southwestern Medical Center.  He works with donors to suggest bequest language to share with attorneys, establish charitable gift annuities and charitable remainder trusts, utilize beneficiary designations for retirement plan accounts and explore gifts of other non-cash assets like real estate and life insurance.  After receiving a Masters of Divinity degree from Vanderbilt University, Randy began a career in development, working in higher education, the arts and in academic medicine.  He received the Chartered Advisor in Philanthropy designation (CAP) through the American College of Financial Services.

To contact Randy Daugherty, please call (214) 648-3069 or email him at