Charitable Remainder Trusts Are an Alternative to Harsh IRA Reforms

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, was signed into law. Congress passed the legislation with the stated goal of helping Americans accumulate more assets for retirement. Accordingly, lawmakers expanded access to “tax-advantaged” retirement accounts, such as 401(k)s and Individual Retirement Accounts (IRAs), among other things. Unfortunately, they also destroyed a key aspect of inheriting qualified retirement accounts, which may lead to a Charitable Remainder Trust as a healthy alternative in your Florida estate planning.

Let us explain this concept in more detail. Prior to the SECURE Act, non-spousal beneficiaries could withdraw assets of inherited IRA accounts over their lifetime, or “stretch” the annual required minimum distributions (RMD) of the account. The practice allowed for continued tax-deferred growth, often decades in the making, and reduced taxes due to the receipt of smaller annual RMD payments. As of January 1, 2020, however, the entire balance of an applicable IRA account will have to be liquidated within 10 years of the account owner’s death, or face taxation of the money all at once. That means dramatically reduced asset growth and hefty annual tax bills for beneficiaries.

This poses a serious problem for people who have been planning to use IRAs as an estate investment vehicle. A Charitable Remainder Trust, however, may provide a solution. If properly planned, Charitable Remainder Trusts can financially support your loved ones, save money on taxes, and benefit a favorite charity.

Let us give you more insight on how this type of Florida estate planning could work for you and your loved ones. Instead of leaving your IRA to a non-spousal beneficiary after your passing, you would leave it to a Charitable Remainder Trust. This involves selecting a charitable organization to receive trust assets, and an individual beneficiary who would receive an annual fixed percentage of the assets held in trust. Your named beneficiary could receive the income over a specified period of time, or even their lifetime, and the charitable organization would receive any remaining assets afterward. The retirement assets would grow on a tax-deferred basis within the trust, while your selected beneficiary pays taxes only on the annual income they receive. Effectively, this mirrors the stretch RMD they would have otherwise received from a pre-SECURE Act inherited IRA.

This is just a start to the information you need to begin to incorporate this type of planning. There is much more to consider, and an experienced Florida estate planning attorney would be able to speak to individual circumstances. While the beginning of a new year is always a good time to update an estate plan, it is even more important now that the SECURE Act has taken effect. Do not wait to schedule a meeting with us to learn more about how you might be impacted by these legal changes and how a Charitable Remainder Trust may provide an alternative solution to your existing retirement plans.