Can a charitable remainder trust receive an IRA and pay children?
Key takeaway
A charitable remainder trust can be named as an IRA beneficiary and make payments to children. Practitioners describe payments over a child's life or for a term of up to 20 years. A charitable remainder unitrust has payout and charitable remainder requirements, and its income beneficiaries generally cannot access additional trust amounts beyond the distributions provided by the trust.
How the IRA passes to the trust
A charitable remainder trust can receive an IRA as its beneficiary. Estate planning practitioners describe the IRA passing to the tax-exempt trust without triggering income recognition, followed by payments to children over their lives or for a term of up to 20 years.
How payments work
A charitable remainder unitrust distributes income first on a worst-in, first-out basis. Distributions begin with ordinary income, followed by capital gains, dividends, income not subject to tax, and principal. An individual named as an income beneficiary generally cannot access additional trust amounts beyond ongoing distributions.
Practitioners describe a charitable remainder unitrust as having projected remainder and payout terms for charity and income beneficiaries. Practitioners also say younger beneficiaries may require a term instead of lifetime payments.
The charitable remainder and heirs
A charitable remainder unitrust provides a remainder to qualified charities. Practitioners say adding beneficiaries can reduce the charitable remainder and may jeopardize compliance with the remainder requirement. Estate planning practitioners describe the charitable remainder requirement as limiting the amount available to heirs.
A charitable remainder trust can provide payments to children while leaving a remainder for charity. The arrangement's payout terms describe amounts distributed to income beneficiaries and the remainder payable to charity.
Common questions
How does a child beneficiary's access compare with inheriting an IRA directly?
Practitioner commentary contrasts a charitable remainder trust income beneficiary, who generally cannot access additional trust amounts, with a non-eligible designated beneficiary who inherits a retirement account and has access to the full inherited amount right away.