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What Is a Charitable Remainder Trust and Why Are They Important to Florida Seniors?

seniors on the beach

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.


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