IRAs Payable to CRTs after the Secure Act

IRAs Payable to CRTs after the Secure Act Presented by: Paul Labiner, Esq. 5499 No. Federal Hwy. , Suite K Boca Raton, Florida 33487 561 -998 -2362 / paul@plabineresq. com © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 1

“Inherited” IRAs Objective Prolong IRA payments over longest possible period of time, thus increasing

“Inherited” IRAs Pre-2020 Law Prior to the SECURE Act IRA assets can be distributed based upon the life expectancy of the beneficiary. IRC Sec. 401(a)(9) © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 3

SECURE ACT TEN-YEAR RULE Basically, requires all IRAs and Qualified Plans to be distributed

SECURE ACT TEN-YEAR RULE EFFECTIVE DATE DECEMBER 31, 2019 © 2011 -2019 Keebler Tax

SECURE ACT TEN-YEAR RULE • Exceptions for certain beneficiaries (“eligible designated beneficiary”) – Surviving Spouse – The employee’s Children under the age of majority (not grandchildren or any other children) – Disabled – Chronically ill – Individual not more than ten years younger than employee IRC § 401(a)(9)(E)(ii) © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 6

SECURE ACT TEN-YEAR RULE Example © 2011 -2019 Keebler Tax & Wealth Education. All

2020 Ordinary Income Tax Rates © 2011 -2019 Keebler Tax & Wealth Education. All

2017 Married © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 2020

Charitable Remainder Trusts © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved

Charitable Remainder Trusts Overview IRA CRT named as the designated beneficiary CRT Payments over life or up to 20 years At the or at the end of the trust term, the charity receives the residual assets held in the trust Charity (Remainder Beneficiary) IRC §§ 401(a)(9), 664. © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 12 Children

Charitable Remainder Trusts Types of CRTs • Charitable Remainder Annuity Trust (CRAT) – The beneficiaries receive a fixed percentage of the initial trust value or a stated amount annually or more frequently. – The amount paid doesn’t change from year to year. – The annual payment must be 5 -50% of the fair market value of the assets at the time of contribution. – The term of the annuity can be: • • For a term up to 20 years, Over the life of the annuitant(s), Over the shorter of the two, or Over the longer of the two. © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 13

Charitable Remainder Trusts Types of CRTs • Charitable Remainder Unitrust (CRUT) – Income beneficiaries receive a stated percentage of the trust’s assets revalued each year. • The distribution will vary from year to year depending on the investment performance of the trust assets and the amount withdrawn. © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 14

Charitable Remainder Trusts Taxation of Distributions • The character of income received by the recipient is subject to and controlled by the tier rules of IRC § 664(b): – First, distributions are taxed as ordinary income – Second, distributions are taxed as capital gains – Third, distributions are taxed as tax-exempt income (e. g. municipal bond income) – Finally, distributions are assumed to be the non-taxable return of principal © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 15

Charitable Remainder Trusts Taxation of Distributions STEP 1: STEP 2: Current Accumulated Ordinary Income Tier 1 © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved STEP 3: STEP 4: Current Accumulated Capital Gains Tier 2 STEP 5: STEP 6: Current Tax- Accumulated Exempt Tax-Exempt Income Tier 3 16 STEP 7: Return of Capital Tier 4

Charitable Remainder Trusts Example • Basic Assumptions – – $1, 000 in a Traditional IRA at death 50 year old beneficiary Pre-tax growth rate of 6% Tax rate assumptions • • 37% income tax rate applies if the IRA is liquidated 32% income tax rate applies if the IRA is distributed over 5 -years 24% income tax rate applies if the IRA is distributed over 10 -years 22% income tax rate applies if the IRA is distributed over the lifetime of the beneficiary or passed to the beneficiary via a CRT © 2011 -2019 Keebler Tax & Wealth Education. All Rights Reserved 17