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.
