IRAs and Charitable Trusts: Video Follow-Up

Video

Hi, it’s Andy Stautz at Stautz Law.  

Today is a bit of a follow up video about a text-only post I made earlier, and this one’s about IRAS and Charitable Trusts.

Did you miss the Charitable Trusts Basics? Go Back and Watch!

So IRAs, individual retirement accounts: construed broadly to include 401(k)s and Roths. All of these structures. Powerful tax savings vehicles. But eventually the tax deferral has to end. The government’s gonna get its money!  

And so a common tax problem is for your beneficiaries. If you have a sizable IRA and you don’t spend it while you’re alive, your beneficiaries are going to get a lump sum that they have to take as taxable income fairly quickly. And you know this is in the “good problems to have” category, in that we’re dealing with lots of money and just how much of it goes where: taxes, your beneficiaries, or charity. 

One clever idea that I want to propose is putting your IRA into a charitable remainder trust. So the idea is you take your IRA, which is tax deferred. (We’re assuming tax deferred.) You put it in a charitable remainder trust. It goes in tax free. So you’re continuing the deferral. That’s great.  

You set up the charitable trust. Let’s assume it’s a CRUT. You set it up to give an income stream to your beneficiary, just like if they had inherited the IRA directly. But you can use the trust to you know, stage the income over time. And it’s taxable income to your beneficiaries, just like if they’d received the IRA directly, but hopefully you can shape it a little and find some savings there.  

And then at the end of the trust term the charity gets the remainder, which is hopefully substantial. And if it’s a qualifying charity they get it tax free. So you’ve got infinite tax deferral. At least with regard to that part.  

So you know potential win-win here: you can save on income taxes, you can keep the tax deferral going, can make a substantial gift to charity. Don’t let the tax tail wag the dog. But if you’re charitably inclined, it can be a great scheme. 

And that’s kind of one step up in terms of charitable planning over simply gifting appreciated assets. You know you’re gifting appreciated assets. But you’re doing it while still steering some income to a non-charitable beneficiary if that’s something you’re interested in.  

It’s a fun idea. I’d love to talk about it with you. Obviously it’s got to be tailored to your situation and set up right. So you can book your initial planning meeting online or you can give me a call. And I look forward to working with you soon.