by Ted Hackney

Using Qualified Plans and IRAs to Help
Operation Guyana and Yourself

Charitable giving can be a valuable tool in an estate or financial plan while also making a positive impact on Operation Guyana. As mentioned in last month’s newsletter there are a number of charitable giving techniques which can be matched to an individual’s circumstances, objectives and preferences.

Charitable planning can be initiated either during lifetime, or upon death (typically through provisions in a will). In addition, charitable contributions can be accomplished through outright transfers or with “split interest” arrangements such as a Charitable Remainder Trust (“CRT”), which can benefit both charitable and non-charitable beneficiaries--including the donor, spouse or others.

A CRT is a special type of tax-exempt irrevocable trust designed to benefit the donor, or someone else the donor chooses, for a period of time, followed by the charity or charities of choice. The donor or some other person chosen by the donor will usually receive an annual payout from the trust equal to a fixed percentage of the value of the trust property. Then, at the end of the trust term--following the death of the person receiving income, or a specified term of years--the trust property passes to the named charity or charities.

The appeal of a CRT is that it permits the donor (or someone else) to receive income for life from property transferred to the trust while providing for a deferred gift to the charity of choice, and it affords many tax and non-tax benefits.

Consider the tax treatment of IRAs and qualified retirement plans (401k, 403b, SEP Ira’s, etc.) upon death. More than any other assets in an individual’s estate, these assets are likely to experience the most loss upon death (or death of a surviving spouse), due to a combination of income and estate taxes.

If a surviving spouse is the plan beneficiary, an unlimited marital deduction may be available to postpone estate tax until second death. In addition, under a spousal rollover, income tax may be postponed. However, following the surviving spouse’s death, when the plan passes to non-spousal beneficiaries such as children or grandchildren, the plan balance can be hit with substantial estate tax, income tax and other taxes. The result--an asset intended to be passed to loved ones can be decimated (actual loss due to tax in excess of 40% or more is not uncommon). And, you do not have to be “rich” for your family to be hit with this huge tax.

A High Value Solution
(it benefits your loved ones and Operation Guyana)

One solution is for the plan owner to designate a CRT (an income-tax exempt vehicle) to receive the plan, resulting in no income tax on the plan balance at the owner’s death. The untaxed full value of the plan is invested on behalf of the surviving spouse. The surviving spouse receives income from the CRT based upon a percentage of the value of the CRT. After the surviving spouse’s death, the CRT’s property passes to the designated charity or charities.

Without going into the technical details, there should be NO estate or income tax on the plan at the plan owner’s death or the spouse’s (or other designated income beneficiary’s) death. Many plan owners will purchase a life insurance policy on themselves and/or their spouse with a small portion of the CRT’s income. Properly structured, this allows the plan owner to replace the value of the plan and give that value to children (or others) without income or estate tax erosion.

A brief review of the potential benefits of estate planning with a CRT:

  1. Reduction and/or elimination of estate and income taxes at death on IRA’s and Qualified plans.
  2. Lifetime income for a surviving spouse, self or others.
  3. A valuable gift to a beloved charity.
  4. More money to surviving family or others.
  5. Eliminates the uncertainty of how much will be left to family and others.

Specific illustrations of how this might benefit you can be created and mailed to you.

  Read You Don't Have to be Rich to Make a Difference

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