Secure Act Shrinks the Stretch

The recently enacted Secure Act, eliminates the life time stretch of retirement assets for non-spouse beneficiaries, with a few exceptions.  Instead, these assets will now be taxed within ten years.  For the charitably minded client, one idea being touted is a charitable remainder unitrust (CRT).  Based on materials I have seen, the ideal payout rate is 5% and the beneficiary needs to be young enough to expect 25 or more years of distributions.  Of course, because of the 10% remainder interest requirement, young beneficiaries will not be able to qualify.   It is unlikely (but possible) for the client to actually be better off with the CRT than without it..  Accordingly, the client must have a strong charitable intent to commit to this planning.  Having said that, however, assuming a long payout period and historical market returns the client may come close the beneficiary receiving same amount of distributions, and make a substantial charitable donation at the end.

The big risk, of course, is that the beneficiary dies early.  If the beneficiary is insurable, life insurance can be used to mitigate this risk.   The client may want to look into life insurance regardless to offset the amount that will pass to charity.

About Grady Dickens

I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.