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Could This Trust Replace the Stretch IRA? Jeffrey Levine Weighs 10 Pros, Cons of CRUTs

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Related: How Secure Act’s 10-Year Rule Creates Tax Headaches for IRA Heirs

In a small number of circumstances, charitable remainder unitrusts (CRUTs) can be used by some investors to replace the benefits of the stretch IRA, according to Jeffrey Levine, Buckingham Wealth Partners director of advanced planning and lead financial planning nerd.

A CRUT is a trust that distributes assets annually in a stretch-like manner over an investor’s life expectancy, then terminates and sends what is left to a charity.

For decades, stretch IRAs were an appealing way for heirs to liquidate a large inherited IRA because doing so both minimized the tax bite (by stretching income out over time) and maximizing tax deferral (by leaving as much of the retirement account intact for as long as possible), according to Levine.

The Setting Every Community Up for Retirement Enhancement (Secure) Act, however, eliminated the stretch option for most types of beneficiaries, replacing it with a 10-year rule that threatens to compress large IRA distributions into a limited number of tax years.

Although CRUTs can preserve lifetime income for beneficiaries, specific rules must be followed for the strategy to work, Levine pointed out in a recent webinar.

During the online event, Levine shared the strategies and nuances of using a CRUT to provide clients with the benefit of a lifetime payout as an alternative to stretch RIAs.

Check out the gallery above for 10 standout things he pointed to that advisors may want to discuss with clients about CRUTs.