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With the 10 year payout requirement for non-designated beneficiaries, what are your thoughts on using a charitable remainder trust to facilitate a lifetime (or 20 year) income stream?

Obviously, it does not have all the advantages of the stretch, but it does provide for tax deferred growth and income stream beyond the 10 years.

Thoughts? 

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5 hours ago, RatherBeGolfing said:

With the 10 year payout requirement for non-designated beneficiaries, what are your thoughts on using a charitable remainder trust to facilitate a lifetime (or 20 year) income stream?

Obviously, it does not have all the advantages of the stretch, but it does provide for tax deferred growth and income stream beyond the 10 years.

Thoughts? 

I've been studying this at great length and depth.  I believe CRUTs and CRATs will be an important tool for those who ALSO have a strong charitable desire.  I fear that it is going to be oversold to those who don't have a true charitable desire and that will end up being just another problem.  This is an area that will be for the estate planning attorney and competent accountant to run numbers and explain to the client how this will all work.  There are other tools that will be put into play as well (sequential Roth conversions of smaller amounts that the total accounts, for example).

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Sequential Roth conversions certainly work, but they would have to be on top of the IRA holder's RMD assuming he/she has same. Better alternative might be applying the RMD (and more if necessary) to purchase life insurance. Assuming insurability not an issue (and where the IRA holder is married, a survivorship policy can often finesse that issue, even if one spouse is otherwise uninsurable on his/her own), that might be step one, with sequential Roth conversions as step two. CRUTs also can work better than you might think, even if one has limited charitable leanings. Based on current AFR, a 50 yo CRUT beneficiary could receive as much as 8%+ a year of the CRUTs annually valued corpus. CRATs don't work very well in a low interest rate environment.

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There could be some very fact specific ideas in my mind.

I was talking to someone I know a little while ago.   His father will most likely leave him some retirement money.   This person is still in their 50s and the father is in the mid 80s.  So there is a good chance this will happen while the person is working.

 

I pointed out money is fungible.   In this case if he has to take money from the inherited IRA he could increase his 401(k) pre-tax to the max or it fully offset the money from the IRA whichever limit he hits first.   In that case the taxable income from the IRA is partially or fully offset by the pre-tax 401(k).

 

Like I said that would be very fact specific and wouldn't do much good with the inherited amount is in the millions.  But I could see a fair number of middle class families having these facts fall into place.  

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Don't think the loss of the stretch means much to anyone outside of the 1%. How many individuals who inherited IRAs they could stretch actually stretched them? But for the 1% it is a meaningful issue.

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15 hours ago, FPGuy said:

Don't think the loss of the stretch means much to anyone outside of the 1%. How many individuals who inherited IRAs they could stretch actually stretched them? But for the 1% it is a meaningful issue.

I don't know about that.  I am in my 50s and now know  a number of people who both their parents and them are basically middle to upper middle class who inherited an IRA or 401(k) benefit worth a few hundred thousand that it would be nice to not be forced to have to take it out while they are still working and pushed into a high tax bracket.   Before you could just take an RMD until you stopped working and then make it part of an overall retirement plan that could include trying to pass about the same amount down to their children. 

Is the impact as large for these people?  No, but there is an impact and they aren't 1%s.  

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2 minutes ago, ESOP Guy said:

Is the impact as large for these people?  No, but there is an impact and they aren't 1%s. 

I agree, it might be the "10-20%" or something like that.  If we're going to veer off and get political, I frankly think this (new law) is good policy.  All the wailing about it (and RMDs in general, whether it be at 70 1/2 or 72) and how it will impact someone's future retirement abilities is utter nonsense, IMO.  If you don't want it then you certainly don't need it.  The law doesn't make you spend it, it just makes you get taxed on it.  What comes out net of taxes can be moved into an after-tax account.

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20 hours ago, FPGuy said:

Sequential Roth conversions certainly work, but they would have to be on top of the IRA holder's RMD assuming he/she has same. Better alternative might be applying the RMD (and more if necessary) to purchase life insurance. Assuming insurability not an issue (and where the IRA holder is married, a survivorship policy can often finesse that issue, even if one spouse is otherwise uninsurable on his/her own), that might be step one, with sequential Roth conversions as step two. CRUTs also can work better than you might think, even if one has limited charitable leanings. Based on current AFR, a 50 yo CRUT beneficiary could receive as much as 8%+ a year of the CRUTs annually valued corpus. CRATs don't work very well in a low interest rate environment.

The original question dealt with 10 year payouts, so no RMDs.  Yes, life insurance may very well be a possible scenario depending on what the objectives of the client are and the various possible beneficiary situations (age, health, capability to handle money, etc.).  I expect, however, that we will also see insurance sold into situations where it actually makes no sense.  Part of what I am working on is when should life insurance be looked at as a possible tool.  It is FAR from a simple situation since there are many moving parts that are subject to change (income tax brackets are scheduled to change without an extender or made permanent by Congress; estate tax issues may come back into the issue with the possible reversion to the old estate tax rates barring change by Congress; rates of return are of course unknown and unknowable; etc.).

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21 minutes ago, Larry Starr said:

I expect, however, that we will also see insurance sold into situations where it actually makes no sense.

All right, where's Ned Ryerson? 😄

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2 hours ago, Belgarath said:

All right, where's Ned Ryerson? 😄

I forgot about him; here's a link for those who are interested: 

 

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3 hours ago, Larry Starr said:

 I expect, however, that we will also see insurance sold into situations where it actually makes no sense.  

What?!?  That would never happen, would it?  I'm shocked, shocked!

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