Welcome to the EPAC Corner! We are pleased to bring you this content from the Estate Planning Advisory Committee (EPAC) of the DeKalb County Community Foundation. If you have any questions about the information below or the EPAC group, please contact Community Foundation Executive Director Dan Templin at 815-748-5383 or dan@dekalbccf.org. 

The EPAC Corner celebrates one year this month! The content aims to provide general information about estate planning and charitable giving. We hope it’s helpful and informative. Please know that we welcome suggestions for monthly content topics. We’d love to hear from you.

Rethinking Inherited IRAs

As you build your estate plan and consider how to provide for your adult children, remember that naming children as the beneficiary of an IRA or other qualified plan probably is not something that should be automatic.

For starters, if you are charitably minded and have other assets, such as highly-appreciated stock, to leave your children, those assets should come first. This is because your children will inherit the stock at a “stepped up” basis, meaning their capital gains tax hit upon sale will be far less. Plus, if you name a charitable organization, such as your charitable Fund at the DeKalb County Community Foundation, as the beneficiary of your IRA, the IRA proceeds won’t be depleted by either income tax or estate tax. Your kids, on the other hand, will have to pay income tax on the proceeds of an inherited IRA.

This dynamic became even more important to consider when the law changed a few years ago, such that a child who was named as the beneficiary of a parent’s IRA, for example, could no longer count on a relatively straightforward and tax-savvy method of withdrawals called the “stretch IRA.” With the passage of the SECURE Act, that changed for many children who inherited an IRA after December 31, 2019. Instead of taking distributions over their lifetimes, affected children now need to withdraw the entire inherited IRA account within a 10-year period as calculated under the law.

If you’re evaluating options for handling an IRA in your estate plan, talk with your advisors and the Community Foundation about leaving an IRA to your charitable Fund or other charity via a beneficiary designation. Or, if you’d still like to provide an income stream to your children following your death, in some circumstances, it might be worth considering establishing a charitable remainder trust to name as the IRA beneficiary (assuming the stars align vis-a-vis children’s health, their tax brackets, projected returns, and other factors).

Importantly, if you are a child of parents who own IRAs, they will appreciate you bringing this opportunity to their attention! Your parents might not realize that their good intentions to leave their IRAs to their children could be saddled with tax burdens down the road. Encourage your parents to talk with their advisors and give the Community Foundation a call. We are here to help make IRAs a win for everyone–your parents, their favorite charities, and you!

– Matthew L. Brown, local attorney and member of the DeKalb County Estate Planning Advisory Committee

Established in 2020, the DeKalb County Estate Planning Advisory Committee (EPAC) is comprised of local professionals providing estate planning services, including attorneys, trust officers, CPAs, wealth advisors, and insurance sgents. The purpose of the EPAC is to raise awareness and understanding of the Community Foundation as a resource for professional advisors and their clients, assist with efforts to deliver effective estate planning education to the general public, and to notify estate planning professionals on topics relevant to the intersection of estate planning and philanthropy.

Matthew L. Brown