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Friday, September 18, 2020

Should A Charitable Trust - Not Your Kids - Be The Beneficiary Of Your IRA?

The recent passage of the SECURE Act eliminated the ability to "stretch" your taxable distributions and related tax payments over your life expectancy if you inherit IRAs from a family member. With a few exceptions, if you inherit an IRA on or after January 1, 2020, you must now withdraw all assets from the inherited account within 10 years. The shorter amount of time you now have as a beneficiary to hold on to an inherited IRA can cause major tax burdens which can severely diminish what you ultimately have at the end of the ten year period. Moreover, the compressed withdrawal time frame will also cause personal income tax increases on many beneficiaries based upon the size of the IRA they inherited and what their own income rates are in the future. What is a possible tax savings alternative? Instead of having your family members as beneficiaries on your IRA when you pass you can name a Charitable Remainder Trust (CRT) as the sole beneficiary. The CRT is an irrevocable trust that distributes a percentage of the trust assets to one or more of your beneficiaries either for life or for a term of up to 20 years. At the end of the term, the trust ends and the balance of the assets are paid to charity. Upon your death, your beneficiaries receive the payout per the terms written in the trust. This technique allows the beneficiaries to "stretch" the distributions over a possible 20 year period as opposed to just 10 years thus opening the possibility of saving thousands in taxes while receiving distributions as a beneficiary. The trust does not report any income nor pay taxes. At the end of the trust term or upon your beneficiary’s death, the balance is paid to the charities designated in the trust. Sweeter still, your estate will receive a charitable tax deduction for the projected value of the portion that will go to charity. This strategy should be a consideration for those with larger IRA accounts.

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477 Viking Drive, Suite 410 , Virginia Beach, VA 23452 | Phone: 757.301.9500
5425 Discovery Park Blvd., Suite 101, Williamsburg, VA 23188 | Phone: 757.301.9500
750 Tysons Blvd., Suite 1500, Mclean, VA 22102 (By Appointment Only) | Phone: 757.301.9500