Retirement fund assets can be one of the most significant assets left in an estate. Unfortunately, the gift of an IRA to a child or grandchild—or anyone other than a spouse or charity—can be one of the costliest gifts of all. Retirement funds given to children or grandchildren can be double taxed, or worse. The vast majority of an IRA could be eaten up by taxes, leaving only a fraction for your intended beneficiaries.
ESTATE PLANNING TIP
Name a spouse or charity as a survivor beneficiary | The best way to deal with IRAs and other retirement assets in an estate plan is to name either a spouse or a charity (or both) as survivor beneficiary. Naming your local council as an alternate or contingent beneficiary of your retirement accounts is as simple as requesting a change-of-beneficiary form from your plan administrator. IRAs and other retirement accounts may also be used to fund a testamentary charitable trust.
Are you age 70 1/2 or older this year? If so, there are special IRA gift opportunities for you.
In 2016, tax free distributions to a charity from your IRA became permanent!
- Donors age 70 ½ or older at the time of the distribution, may make distributions of up to $100,000 a year directly to charities and avoid paying any tax on the distributions.
- Younger donors who do not qualify for the tax free IRA distributions may still make contributions from their IRA. They will be taxed on the withdrawal, but are entitled to a charitable tax deduction that often offsets the tax paid for the distribution.
But please talk to your advisors – this may affect your tax bracket, it won’t work unless you itemize your deductions, etc.
The 2018 tax law changes kept the existing marital deduction, allowing an unlimited transfer amount between spouses. But it greatly increased the lifetime estate and gift exclusion, allowing the transfer of up to almost $11,200,000, at any time during life or at death, to anyone, tax free, regardless of marital status. For example, a married couple may transfer unlimited amounts between them, and another $22.4 million at any time to anyone else they want (e.g. children, grandchildren, etc). For over 99% of taxpayers, this eliminates estate tax concerns, greatly increases the amounts available to pass to family and charities, and reduces the need to create trusts just to avoid transfer taxes. The 2018 tax law changes also increased the annual exclusion to $15,000 per year/per person- additional amounts that can be transferred to anyone without transfer tax and without impacting your lifetime exclusion.