The SECURE Act brought significant changes for retirement plan sponsors and plan participants.

As a downstream consequence, it made changes to how stretch individual retirement accounts (IRAs) and required minimum distributions (RMDs) work.

Our Endowment and Foundation National Practice Group members opine on the opportunities (and challenges) that these changes might provide.

Stretch IRA: What is it and what changed?

“Stretch IRA” refers to the concept of a nonspousal inheritor of an IRA “stretching” the RMDs over his or her life expectancy. The SECURE Act removed this as an option for plans inherited after December 31, 2019, with limited exceptions, requiring IRA inheritors to distribute the IRA by December 31 of the tenth year following the year of the IRA owner’s death.

Testamentary Charitable Remainder Trust: an alternative?

The Charitable Remainder Trust is a philanthropic vehicle that provides payments to a beneficiary over their lifetime, a specified term, or until the assets in the trust exhaust, with the charitable organization receiving any remaining principal at the end of the life of the vehicle.

The idea here is that someone could create a testamentary charitable remainder trust with IRA assets to pass on distributions from the trust to the intended beneficiary while allowing the assets to remain and grow within a tax-free vehicle for a longer period of time (term of years or life).

Why do this? What are the costs?

The obvious benefit is the ability for the assets to grow in a tax-free vehicle while making distributions to the beneficiary over the life of the charitable remainder trust – potentially longer than 10 years. Additionally, the estate may qualify for an estate tax deduction.

From a cost standpoint, there are legal fees associated with setting up the trust as part of a will and often administrative and investment fees due to the trustee and its agents to administer the trust.

What can you do right now?

One possibility to suggest for donors looking to take action now is the idea of a charitable remainder unitrust (CRUT). The CRUT allows a donor to create the trust now and supplement the original corpus later on by making it the beneficiary of the IRA (or other assets) in the donor’s estate plan.

About Us

The Endowment & Foundation National Practice Group builds on our longstanding commitment to philanthropy and is focused on endowments, private and public foundations, and nonprofit organizations. We seek to help these organizations address their distinct Investment, distribution and capital preservation challenges.

For more information, contact Henri Cancio-Fitzgerald at henri.fitzgerald@pnc.com.