Planning for the distribution of your assets is a critical element of estate planning. Thoughtful consideration can allow you to leave a lasting legacy and provide for your loved ones while also supporting charitable causes dear to your heart. One powerful strategy to accomplish both goals is using an Individual Retirement Account (IRA) to establish a Charitable Remainder Trust (CRT) for the benefit of your children.
What Is a Charitable Remainder Trust (CRT)?
A Notre Dame Charitable Remainder Trust is a tax-advantaged financial planning tool that allows you to provide an income stream to beneficiaries of your choosing, typically yourself or your children, for a specified period or for life. After the trust term ends, the remainder is used at the University as an unrestricted gift or for a purpose determined by agreement with the donor family.
Here's why using an IRA in this way can be a smart move:
1. Tax Efficiency
IRAs often contain pre-tax contributions and accumulated earnings, which can result in substantial tax liabilities for your heirs when they inherit the account. Your heirs will most likely be required to withdraw the entire balance of the Inherited IRA within a ten-year period, potentially exposing the recipients to increased tax brackets and large tax bills. Alternatively, a CRT can often be established to make distributions over a lifetime. By naming a CRT as the beneficiary of your IRA, you can mitigate these tax consequences by spreading the distributions out over time while allowing the CRT to grow through investment in the Notre Dame Endowment.
2. Lifetime Income for Your Children
A CRT can provide your children with a steady source of income for either a specific number of years or their entire lifetime. This can be especially beneficial if they are financially dependent on the IRA assets or if you want to help provide for their financial security.
3. Philanthropic Legacy
Creating a CRT offers you a powerful means of making a substantial and enduring difference at the University of Notre Dame. This unique form of gift not only allows you to align your personal philanthropic and financial goals but also fosters the University's long-term sustainability and its capacity to pursue its mission far into the future.
4. Asset Diversification
If your IRA is heavily concentrated in a single class of assets, such as publicly-traded stocks, using a CRT can facilitate the diversification of these assets without triggering immediate capital gains taxes. This ensures a more balanced and potentially less risky investment portfolio for your heirs.
5. Professional Management
Notre Dame CRTs are administered by the University and invested in the Notre Dame Endowment, which has produced annualized returns of over 10% over the past 20 years. The University does not charge any fees for this, so your entire gift goes to work for you and eventually the University.
Using an IRA to establish a Charitable Remainder Trust for your children is a powerful estate planning strategy that can provide your heirs with a tax-efficient income stream, support Notre Dame, and ensure your legacy endures for generations.
Please reach out to the Notre Dame Gift Planning Office at pgiving@nd.edu to connect with one of our Gift Planning Officers, as the creation and funding of this type of gift requires close coordination with the University and your tax and legal counsel.