Estate Planning for Married couple after 2nd Death
A friend recently created revocable trusts and updated IRA beneficiary forms.
Upon the second death they planned on donating 10% of total estate value to charity and split balance between two adult kids via trusts for their benefit. The estate is approximately $1M taxable, $1M TIRA and $0.5M ROTH. The TIRA and ROTHs currently go to the kids, therefore the charity will be paid from the taxable account. (Note the taxable account does not have a large capital gain subject to tax at this time.)
It recently dawned on me that maybe the best method would be to eliminate the charity donation specified in the revocable trust and periodically, say yearly, update the beneficiary forms for the TIRA to achieve the same benefit with less income tax and possibly less estate tax if the exclusion amount is reduced in the future. This would mean that the TIRA beneficiary form for current account values would be Charity 26%, 1st Kid 37%, 2nd Kid 37%. (Rounded charity up to even number so the kids get equal share.) The taxable account and ROTH would all go to the kids. Either case the charity gets $250,000 to $260,000 and only Uncle Sam would loose in this scenario.
Does this make sense?
Permalink Submitted by Bruce Steiner on Thu, 2011-03-10 21:19
Yes. It makes sense. Didn’t their lawyer discuss this with them when they created their revocable trusts?
Permalink Submitted by Dave Haynie on Sun, 2011-03-13 16:57
They basically told attorney they wanted 10% of estate to charity and they wanted the IRA’s to stretch for the kid’s. The above is what the attorney did. No other real discussion of options on how to accomplish.
I could see that if there were a lot of gains in the taxable acct that it would be better to donate from there, but even then assuming L.T. gains that would only be 15%. Or rather stepped up basis upon death no income taxes.
I posted the question because I wasn’t sure if donating to charity from TIRA after death that the amount would not be subject to income tax or not included in the estate value. I believe I’ve heard mention where before death there is a limit of $100,000 that can be donated from TIRA.
Permalink Submitted by Alan Spross on Sun, 2011-03-13 17:56
That’s right. While still living the taxpayer is limited to the 100,000 max PER YEAR as long as the QCD is extended by Congress.
After death, there is no limit to the amount left to charity, and it is still included in the gross estate, but offset by the charitable deduction. The charity does not pay income tax on the funds received and therefore it is best to leave a TIRA to charity than a Roth IRA. The charity gets no greater benefit from a Roth IRA than a TIRA, but of course individual recipients do.
When an IRA is left partially to a charity, the charity’s share must be distributed no later than 9/30 of the year following year of death, OR the individuals must create their own separate accounts no later than 12/31 of that year to avoid having the stretch impaired by the trust beneficiary. If an IRA owner is not confident that these things will be properly completed by beneficiaries by those deadlines, they should consider separating the IRA account with the charitable beneficiary while living.