You might be looking for ways to maximize the amount of money your children can inherit from your Individual Retirement Account (IRA), given the changes implemented by the SECURE Act in 2020. One possibility, depending on the value of your IRA, might be to establish a Charitable Remainder Trust. We look at the pros and cons of this estate planning tool.
What Has Changed?
The SECURE Act of 2019 was intended to improve the current retirement savings system by offering access to tax-advantaged savings plans to more people, such as small businesses and part-time employees. At the same time, however, it also got rid of the stretch IRA, a way for non-spouse beneficiaries to take minimum withdrawals from an IRA over the course of their expected lifetimes. Now, beneficiaries can only spread withdrawals over a 10-year period, which lowers the value of the account and incurs higher income taxes.
Who Can a Charitable Remainder Trust Help?
If your IRA is worth a lot of money, and you want to maximize the value and control how your children inherit it, a Charitable Remainder Trust (CRT) might be the right estate planning tool to use. With it you can:
- Distribute an annual income to one or more beneficiaries over a maximum 20-year period. This can be a fixed amount or a percentage of the value of the account.
- Avoid taxes on the IRA funds when they are received by the CRT.
- Spread out the distribution over a longer period of time than what the SECURE Act allows.
- Designate a charity to receive whatever is left in the CRT (the remainder) after the time period is up.
Some disadvantages of a Charitable Remainder Trust include:
- Lack of flexibility in the amount of money the beneficiaries can withdraw each year
- Fees, accounting, and tax preparation
If your IRA is worth $1 million or more, and you have named children or grandchildren as beneficiaries, it is worth exploring the option of a Charitable Remainder Trust.
Contact Ross & Shoalmire, PLLC to Review Your Estate Plan
If an IRA is part of your estate and you have not reviewed your plan in light of the SECURE Act, now is a good time to talk to the estate planning team at Ross & Shoalmire, PLLC. With offices to serve you throughout Northeast Texas and Southwest Arkansas, we are where you need us to be!