Estate Planning & Asset Protection
Estate Planning & Asset Protection
October 27, 2014
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Durfee Law Group LogoFor years, I have been telling people a little known secret of IRA’s.  There is a way you can pass the benefit of your IRA to your heirs tax free.  Recently Bob Carlson in his newsletter recently discussed the strategy.  It combines an IRA with a Donor Advised Fund.  He quotes David Phillips and calls it the “IRA with a Twist” strategy.  You can read about it here.  Bob Carlson Retirement Watch May 2014 – Charitable Twist.  It is simple in its structure:

Tax Free IRA

  • You keep your IRA.  You don’t give it away or destroy it.
  • You continue to defer it for as long as it makes sense, and as long as you can
  • You take your RMD’s (Required Minimum Distributions)
  • You pay the taxes on the RMD’s as they occur
  • You use the balance of the distribution to buy life insurance (typically inside an Irrevocable Life Insurance Trust so it is outside your taxable estate — or if your my client a “Dynasty ILIT”)
  • Then you name your family foundation (i.e., Donor Advised Fund) as the beneficiary or your IRA at death.

While you are living, you still have your IRA.  You can still draw upon it as needed to fund your retirement years.  Like a lot of estate planning, sadly, the magic happens when you die.

Tax Free Results

When you die, this is what happens:

  • You pay zero taxes on the benefit to your heirs.  Your heirs get the benefit of the life insurance.  If this is properly structured, it will be both income tax free and estate tax free.  This means your heirs get the “value” of the IRA tax free.
  • You pay zero taxes on the balance in your IRA.  Your IRA goes completely tax free to your Family Foundation — this means you have captured the dollars that you were going to sent do the politicians.  Instead of strangers in the government deciding what will happen with your IRA, you and your family get to support charities of your choice through your the Donor Advised Fund.
  • Your family has all the economic benefit of your IRA
  • Your family then enjoys having social capital in your Family Foundation with which to bless the world and make it a better place.

Death and taxes are not optional.  However, paying taxes on an IRA at death is optional.

People often ask, how can I get money out of my IRA without paying taxes.  This is the way.  Pay attention or pay the tax.


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