The Testamentary Family Foundation

Just about everybody knows that Individual Retirement Accounts – IRAs—and other forms of deferred compensation that grow free of taxes can be a very efficient means of building a substantial nest egg. But can your IRA nest egg survive transfer to your heirs without getting scrambled by the tax man?

Many people don’t realize that amounts remaining in these plans upon their deaths are subject to two taxes: income (income in respect of a decedent) and estate taxes. Retirement plan assets can be eroded by federal estate taxes and after that estate tax is paid, the balance is subject to income taxes. As a consequence, your heirs may receive 40% or less of your retirement plan.

Testamentary Family Foundation:
You can arrange to have the remaining balance of unconsumed retirement plans paid at your death to your Testamentary Family Foundation, also known as a testamentary charitable remainder trust, with your heirs as income beneficiaries. The trust will pay your heirs a pre-established income for life or a term of years, at the end of which, the remainder will go to charitable causes supported by the Family Legacy Fund.

Here are the advantages of this strategy:

• Your heirs or your estate avoid payment of the income tax as well as some of the estate tax usually attributable to your IRAs or qualified plans.
• Your estate receives a charitable estate tax deduction for the value of the remainder interest going to charity based on the trust term or ages of your heirs at the time of your death.
• Your heirs benefit from an annual payout from the Testamentary Family Foundation over a period of years or their life. This total cash flow can translate to 6-10 times more than what they would have received from your IRA without careful estate planning.