Mini Case Study: Charitable Bequest
This week, we helped one of our retired clients in San Ramon, CA adjust her estate plan so that her charitable wishes don’t impact how much money she leaves for her spouse and children.
Here’s what that looked like:
Amy has been incredibly charitable her whole life and wants to do something special with her estate once she dies.
She named 5 charities to each receive $15K at the time of her passing, with everything else going to her second husband and her kids from her previous marriage.
In addition to Amy’s large brokerage account which is held by her Revocable Living Trust, she also has a large IRA, which named her second husband and her kids as beneficiaries.
What Amy didn’t realize is that it would be more tax efficient for her heirs to inherit her brokerage account, and for the charities to get their funds directly from her IRA.
This is because IRAs are taxed as ordinary income when a spouse and kids receive them (based on when the income is withdrawn), whereas charities can receive the money tax-free. In addition, a 2019 tax law change called the Secure Act requires that retirement account money left to a non-spouse must be withdrawn within 10 years in most circumstances.
Conversely, her brokerage account will receive what’s called a “stepped-up-basis” at her death, wiping away the capital gains and making this a much more tax efficient asset for her heirs to inherit.
Even though someone’s estate plan may be in order from a legal perspective, that doesn’t mean it’s the most tax efficient way to structure things. That’s where having a second set of eyes can be helpful.
Send me an email (ryan@swrpteam.com) or book a time on my calendar (https://calendly.com/ryan-summitwealth/30min) if you’re dealing with a similar situation and need a trusted Advisor that can help.
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