The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) eliminates stretch IRA plans. Under this new legislation, non-spouse beneficiaries must withdraw their inherited IRA within 10 years, creating larger distributions and higher taxation.

Many gift planning methods can be used to create customized solutions for those who wish to leave their IRAs to children or other loved ones. Explore these tax-wise scenarios for estate planning inspiration.

Agatha Maroon is a devoted Aggie with three sons and an estate of $1.8 million.

Her IRA has grown to $1 million, and she has additional assets valued at $800,000. Agatha desires to provide her children with some principal and then income for their lifetimes. However, one son has a history of poor money management. To treat her children equally while protecting her “creative spender,” Agatha includes directions in her will to create a three life charitable remainder unitrust, or “give it twice” trust, and names the Texas A&M Foundation as trustee.

She updates her IRA beneficiary to the Texas A&M Foundation as trustee of the Agatha Maroon Unitrust. When Agatha passes away, the $1 million IRA is distributed to the Foundation for her children’s lifetimes. The trust will pay each son a 5% payout for his life.

Agatha’s sons receive the estate balance outright, with each receiving more than $250,000 (after costs). Each son will then receive one-third of the unitrust income. During the children’s lives, the unitrust will pay out more than $2 million in income, giving each son about $750,000 during his lifetime. After all three children have passed away, approximately $1.6 million will support Texas A&M University
per Agatha’s wishes.

Jim Reveille has one daughter, an estate of $4 million and a passion for helping underprivileged youth succeed.

His IRA is valued at $2 million, and he has other property valuing $2 million. He wishes for his daughter, Charity to be the beneficiary of his IRA. However, the new SECURE Act would require her to pay up to 40-60% tax on her inheritance within 10 years following his death. 
 

Rather than naming Charity as the beneficiary of his retirement funds, Jim leaves her his other assets that are valued at the same amount as the retirement account, allowing her to inherit more tax-advantaged assets. Jim then names the Texas A&M Foundation and Big Brothers Big Sisters of America as beneficiaries of his retirement account because this will support causes he’s passionate about while eliminating all taxes. He works with the Foundation’s Office of Gift Planning team to create endowed scholarships to support first-generation college students after his lifetime. Jim feels good knowing that the full value of his retirement accounts will benefit future generations.

Joy Howdy recently lost her husband, Hank, to cancer at age 73. The couple had no kids and were debt-free.

The new widow is financially secure, yet she inherited Hank’s $700,000 IRA. She would like to use this money to honor her husband’s memory by supporting the Corps of Cadets, which Hank treasured during his time in Aggieland. Joy also wishes to support her dear family friend, Grace, who was Hank’s caretaker his last year of life.

Because Joy is Hank’s surviving spouse, the new SECURE Act does not affect her ability to continue to grow the IRA tax-deferred over the course of her lifetime. However, Grace would need to withdraw any inheritance Joy left her within 10 years of Joy’s death, acquiring heavy taxation.

Joy discovers a winning plan in a blended gift option. She uses her inherited IRA to fund a scholarship using a Qualified Charitable Distribution. This scholarship creates a meaningful relationship with her recipient, with whom she shares Hank’s love for Texas A&M. 

Next, Joy creates a trust in her will to provide for Grace and names the Texas A&M Foundation as trustee. The IRA continues to grow tax-deferred and is moved to the trust when Joy passes away. Grace will receive payments from the trust during her lifetime. After her life, the remainder will support the Texas A&M Corps of Cadets scholarship that Joy made to honor Hank’s legacy. 

Learn how gift planning can benefit your specific scenario by contacting Angela Throne at (979) 845-8161 or giftplanning@txamfoundation.com.

“Give it Twice” Trust Benefits

  • Replaces your obsolete stretch IRA plan
  • Distributes payments to heirs over their lifetimes versus SECURE Act’s 10-year term
  • Removes tax burdens from heirs
  • Allows tax-free growth inside the trust
  • Shields IRA from being taxed when distributed to the trust
  • Allows flexibility during your lifetime
  • Generates a charitable estate tax deduction
  • Leaves significant gifts to support Texas A&M and other named charities

This trust is An ideal strategy for those who are:

  • Planning to benefit their family through an IRA
  • Depending on a now obsolete stretch IRA plan
  • Interested in tax savings
  • Charitably minded
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