Page 47 - Investment Advisor September 2021

Conclusions

RETIREMENT PLANNING
By Jeff Berman and Ginger Szala

$3 million that the individual’s benefi-
ciary would get for a CRUT for it to make
sense as a wealth transfer vehicle, Levine
stated. Also, some individuals are “flat
out going to be too young” to be benefi-
ciaries, making it actuarily impossible to
satisfy the 5% minimum annual distribu-
tion and 10% remainder requirements of
a CRUT, he said. The youngest possible
beneficiary age is usually somewhere in
the mid-20s, but varies, he noted.

2. There are “tricks” for younger
beneficiaries.
Distributions can be delayed up to 12
10 Pros and Cons of CRUTs months after the valuation date, Levine
noted. For example, if you value the
According to Jeffrey Levine CRUT on Jan. 1 each year but wait to
distribute the assets until Dec. 31, if the
investment increases in value, which
Also, estimated 2022 COLA raised to 6.2%. investments tend to do, “you can effec-
tively make more money last inside that
n a small number of circumstanc- The Setting Every Community Up for CRUT, making that 10% residual value a
es, charitable remainder unitrusts Retirement Enhancement (Secure) Act, little bit more possible for those on the
I(CRUTs) can be used by some however, eliminated the stretch option margin,” he explained.
investors to replace the benefits of the for most types of beneficiaries, replacing Also, if the owner of an IRA or 401(k)
stretch IRA, according to Jeffrey Levine, it with a 10-year rule that threatens to is under 72, the five-year rule also can be
Buckingham Wealth Partners director compress large IRA distributions into a used to delay distributions to the CRUT
of advanced planning and Kitces.com limited number of tax years. up to five years, he said. If you do that
lead financial planning nerd. A CRUT is Although CRUTs can preserve life- and the kid who would be inheriting the
a trust that distributes assets annually time income for beneficiaries, specific money is 24 at the start, he or she would
in a stretch-like manner over an inves- rules must be followed for the strategy be 29 when the funds are distributed
tor’s life expectancy, then terminates to work, Levine pointed out in a recent to the CRUT and now old enough to
and sends what is left to a charity. webinar. During the online event, Levine receive them, he explained.
For decades, stretch IRAs were an
shared the strategies and nuances of
theispot.com/Michael Austin large inherited IRA because doing so the benefit of a lifetime payout as an expectancies create a challenge.
3. Beneficiaries with shorter life
appealing way for heirs to liquidate a
using a CRUT to provide clients with
alternative to stretch RIAs.
both minimized the tax bite (by stretch-
The primary tax benefit of a CRUT
ing income out over time) and maximiz-
is the tax deferral, Levine noted. But
1. Using CRUTs as a wealth transfer
ing tax deferral (by leaving as much of
the 10-year rule for non-eligible desig-
vehicle can be tricky.
nated beneficiaries already provides this
the retirement account intact for as long
deferral. If the life expectancy is under
as possible), says Levine.
The amount must be more than
SEPTEMBER 2021 INVESTMENT ADVISOR 45