LEAVE MORE TO YOUR HEIRS & BENEFIT YOUR FAVORITE CHARITY WITH A CRUT
Currently, when someone leaves an IRA account to a non-spouse beneficiary, the beneficiary is required to take out required minimum distributions (RMDs) that are based on the beneficiary’s life expectancy. There is political pressure in Washington DC to limit RMDs for non-spousal heirs to five years. This would mean required IRA distributions at potentially high tax rates.
A Charitable Remainder Unitrust (CRUT) technique can allow your heirs to receive more money and benefit the charity of your choice at the same time. This requires a provision for the creation of a “testamentary” CRUT in your will. This is not a do-it-yourself project, so consult your attorney to get the language done correctly. The CRUT must be named as the beneficiary on your IRA. When you die, the CRUT can make annual payments to an heir (or heirs) for a fixed number of years or for their lifetimes. Regardless of the law regarding RMDs at the time, the CRUT make’s its planned distributions provided in the document and at the end of the trust period, the remaining balance goes to the charity named in the CRUT. By law, the charity’s share must be projected to be at least 10% of the starting value when the CRUT is created.
There are a number of models that demonstrate the “stretched” distributions to the heirs, net of taxes is greater than the amount they would receive if forced to take the funds over five years or lump sum. These are complex calculations, but well worth consideration. If congress shortens the RMD distribution periods for inherited IRAs going to someone other than your spouse, then this technique may provide for longer deferral periods, higher net present value of income benefits to your heirs and help your favorite charity, all at the same time.