Question: I would like my IRA to benefit my heirs, but also incorporate a charitable component. How can I get the ‘best’ of both worlds? Answer: When a non-spouse inherits an IRA, generally the non-spouse beneficiary can stretch out the IRA by taking withdrawals from the account over her lifetime thereby allowing the money to continue to grow tax-deferred over the course of the beneficiary’s life. If the IRA names the ‘wrong’ beneficiary, the IRA may need to be liquidated within a short time after death. One option instead of leaving an IRA directly to your heirs is to leave the IRA to a charitable remainder trust or “CRT”. The CRT is a trust which provides the individual beneficiaries with income for a pre-determined number of years (or lifetime), with the remainder in the trust passing to one or more charities of your choice. Comments: If the IRA names the CRT as beneficiary, your heirs would likely receive less money than if they had stretched out the IRA over an individual’s life expectancy, but more (assuming the account grows over time) than if they were required to liquidate the IRA after a short time period (e.g., 5 years or less). Naming the CRT also has certain income tax advantages because of the charitable component. Clearly this is just one possibility and each situation would need to be evaluated on its own merits. One last note, President Obama has proposed to in fact limit the ‘stretch’ to five years for many IRA beneficiaries other than a spouse. .As always, if you have any questions or would like to learn more, please let me know.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates. You can connect with Offit Kurman via our Blog, Facebook, Twitter, Google+, YouTube, and LinkedIn pages. You can also sign up to received Law Matters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
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