A.: What you have probably read about is a Charitable Remainder Trust (CRT). These trusts have been around for a long time but are gaining newfound attention due to the new 10-year rule applicable to most Inherited IRAs. Under the new rules, all assets of an Inherited IRA or retirement plan such as a 401(k) must be paid to the beneficiaries by the end of the 10th year after the death of any IRA owner that dies in 2020 or later. The only beneficiaries that can stretch distributions beyond 10 years are spouses and Eligible Designated Beneficiaries.

The CRT strategy names the CRT as beneficiary of the IRA. Upon the IRA owner’s death the assets are paid to the trust. No taxes are incurred upon transfer to the CRT. A Charitable Remainder Trust provides a payment to one or more beneficiaries for as long as they live or for a fixed number of payments.

The beneficiary cannot change the payout method or access additional funds. This is a key difference over the stretch and the 10-year rule, both of which offer beneficiaries some choices about how much to take each year. With a CRT, the trust beneficiary only gets the payment the trust says they will get.

While the funds were not taxed when transferred to the CRT, using a CRT does not escape taxes, it defers taxes. Since the assets were to be taxed at ordinary income rates when paid out normally from the IRA, they are also taxable as ordinary income to the beneficiaries when paid to them from the CRT. When the last payment is made, the remainder goes to the designated charity (or charities). Hence the name Charitable Remainder Trust.

The amount of the payments is based on a number of factors including interest rates and the age of the beneficiary. The idea is similar to the concept that applies to stretching payments from an IRA. The IRA money received is paid out over a longer period of time and thus spreads the tax liability out over more years. What is different is the actuarial calculation requires that the payment be such that the charity is expected to eventually receive a specified minimum portion as its remainder interest.

I’m not going to go into details about that calculation but the longer the pay period, as is the case with a younger beneficiary, the smaller the payments. In fact, the calculation makes naming a beneficiary of a Charitable Remainder UniTrust younger than 27 or so impossible. Regardless, in most cases, it would take far longer than 10 years for the CRT beneficiary to receive what they would have received under the 10-year rule.

Naming a CRT as beneficiary to try to stretch the payments over the longest time frame means maximizing the risk that the beneficiary dies before enough payments are made to achieve the deceased’s asset transfer goals. Remember, the remainder goes to charity not the family.

“CRT as IRA stretch substitute” can work but it is far from a no-brainer if the goal is to keep more money in the hands of the non-charity beneficiary. The most common factors that arise that can make the CRT worthy of consideration include an IRA owner that has a charitable intent, a healthy income beneficiary that is not too young or too old, an income beneficiary that has access to other funds should payments from the CRT not meet their needs, an IRA owner that does mind the cost to create the trust in their estate planning documents, and an IRA that is large enough to be practicable and warrant the costs of maintaining the trust such as trustee fees, accounting and annual tax returns.

I’ve only scratched the surface here on the ins and outs of implementing this strategy. It can fit some families well but for most, it isn’t a great substitute for the old stretch capabilities if the goal is to keep the funds in the family. For charitably inclined IRA owners, it may be worth exploring with your attorney and financial planner.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line. 

Dan Moisand is a financial planner at Moisand Fitzgerald Tamayo serving clients nationwide from offices in Orlando, Melbourne, and Tampa Florida. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.