Stautz Law

Tag: IRA

  • IRAs and Charitable Trusts: Video Follow-Up

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    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. 

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  • Talking About . . . Coordinating Beneficiary Designations

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    Hi. It’s Andy Stautz with Stautz Law and we are back for another quick informational chat about basic estate planning topics. Today we’re talking about beneficiary designations and specifically coordinating your beneficiary designations.  

    So if you’ve seen my previous videos or read elsewhere, you know that one really simple, easy type of planning technique is just to name a beneficiary on a retirement account; a life insurance policy; or I include transfer on death deeds because they’re basically a beneficiary designation. And what these mechanisms do is pass the property involved (the account, the policy, the real estate) automatically outside of probate. To [whomever] you named as the beneficiary on the instrument or on the account. The nice thing is it’s outside of probate. And for many cases, you know, if you’ve got an account at Vanguard or Morgan Stanley or Schwab, you can do it yourself. [You] don’t even need an estate planning attorney to get it set up for you.  

    The danger is that you do something accidental. So one common scenario is someone has a retirement account and they put. . . . one of their children as the beneficiary on the retirement account and they put another child as a beneficiary of a transfer on death deed. And they say, great, my planning’s done. And perhaps the retirement account is worth $100,000 and the House is worth $100,000. And they think they’ve split up their estate. And they’re good to go.  

    Well, what happens when 20 years later? You know, they have a long, healthy life. The assets in the retirement account keep going up. The House appreciates and you know at time of death it comes time to distribute the assets and all of a sudden one kid gets a half million dollar retirement account and the other one gets the same house worth whatever it was worth all along. Or the other way around. 

    You can end up with unfair distributions that go against your initial wishes if you don’t coordinate your designations with your whole estate plan.

    You can end up with unfair distributions that go against your initial wishes if you don’t coordinate your designations with your whole estate plan.

    So one way to get around that is just revise them often. But that’s pretty, that’s pretty, pretty low tech. And it requires you to stay up to date on these things, and most people don’t want to do that. Most people want to have one good conversation with their estate planner. Get their plan done and check it off right. Yep, done. And there’s a lot to that.  

    So there are there are different ways to handle coordinating beneficiary designations. One easy one is to designate a trust. (If that’s allowed by your bank or retirement account) That way you can write more specific instructions into the trust instrument or. Sort of put everything into one pot and distribute from there, rather than hoping that all the different accounts end up equal or close to equal. And then there are more sophisticated ways, too.  

    Or if charitable interests are part of your plan, that can be a great way to do it. But in any case, the thing to remember about this discussion is beneficiary designations are simple. They’re great. But you need to have a plan for how they’re going to work together and make sure that your estate plan . . . works like it ought to, even if your circumstances change over time. 

    So. 

    If you need help with your situation, you should call me or book an appointment online, on here on the website. But again, Andy Stautz for Stautz Law. Thanks for watching and I hope we’ll be in touch soon.

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