Did you know charitable remainder trusts are gaining notoriety as an alternative to
harsh new changes impacting retirement accounts like 401ks and IRAs? Many
Florida seniors with these “tax-advantaged” accounts have planned on leaving them to their loved ones as an inheritance, but that may not be the best idea as of January 1, 2020.
Last year, Congress passed the Setting Every Community Up for Retirement
Enhancement Act of 2019, or the SECURE Act, as a way of addressing the stunningly
lack of retirement savings for working Americans. According to the U.S. Bureau of
Labor Statistics, only 51 percent of working adults participate in a workplace
retirement plan, and those who do are alarmingly behind where they need to be to
support themselves in elder age. Thus, lawmakers expanded access to 401ks and
IRAs, among other items, but they also made a change that virtually destroyed the
longstanding practice of “stretch” payments.
Prior to the SECURE Act, non-spousal beneficiaries who inherited tax-qualified
retirement accounts could stretch-out their required minimum distribution (RMD)
payments over their lifetimes. That meant continued tax-deferred growth of the
account and smaller annual income tax obligations. Now, beneficiaries must
liquidate applicable inherited accounts within 10 years or face a hefty tax on the full
balance of the account. Conversely, tax-deferred growth of the account is stunted,
and annual tax bills are larger.
A charitable remainder trust, however, can deliver similar pre-SECURE Act benefits
while also encouraging philanthropy. Let us provide some information on how it
works. For example, instead of bequeathing an IRA directly to a family member, the
account holder would make the charitable trust the beneficiary. The account holder
would then select an individual to receive annual income payments from the trust
that would be administered for a specified period of time, including the adult child’s
lifetime. After the specified period of time or the death of the individual, remaining
assets in the trust would be donated to a designated charity.
We know this article may raise more questions than it answers for you, as well as
the fact it may impact your pre-2020 Florida estate planning. If you or someone you
know would like more information about charitable remainder trusts and how they
might help protect your retirement accounts, do not wait to contact our law firm to
speak with a Florida estate planning attorney today.