2022 UPDATE - The SECURE Act created the "10-Year Distribution Rule" for most inherited IRAs where the owner passed January 1, 2020 or later. This results in requiring full distribution in 10 years for most beneficiaries who are adult children of the IRA owner. If the owner of an IRA names their adult children as IRA beneficiaries, in many cases these heirs will pay higher taxes on the inheritance they receive than they would have when the Stretch Distribution was in place.
UPDATE OCT 2022: When the "10-Year-Distribution Rule" was created, it was not clear to beneficiaries if the 10-year rule required any RMD for any of the calendar years except for the last year of the 10-year period. This was clarified by the IRS on October 7, 2022. YEARLY RMDS WILL BE REQUIRED STARTING IN 2023.
Those who last updated their IRA beneficiary designations when the Stretch Distribution on IRAs was still in place may wish to revisit their estate plans. Adult children who have inherited an IRA from a parent who passed January 1, 2020 or later may wish to consult their tax or financial advisor to create a plan for taking distributions.
One charitable option is the "Give It Twice Trust", known by advisors as a testamentary charitable remainder unitrust (CRUT), funded with the IRA balance. This can have some advantages for the donor and their heirs as well as the charity. This plan can provide lifetime payments to heirs, spread out the taxes on the inheritance and provide a future gift to United Way or other charity close to their heart.
You may be looking for a way to provide your children with income while making a gift to United Way of Santa Barbara County. The "give it twice" trust is a popular option that allows you to transfer your IRA or other asset at death to fund a term of years charitable remainder unitrust. We call this kind of unitrust a give it twice trust because you can use the trust to pay income first to your family for a number of years and then distribute the balance of the trust to charity.
If you have any questions about a give it twice trust, please contact us. We would be happy to assist you and answer any questions you might have.
Provides Tax Savings. The give it twice trust produces income and estate tax savings.
Promotes Fairness. The give it twice trust establishes a mechanism that will help you treat each of your children equally. This can help promote peace in your family.
Teaches Your Children. Give children income rather than a lump sum. Studies of inherited wealth have concluded that many children spend lump sum inheritances, whereas they learn to be more responsible with inheritances paid out over time.