Many of us want to give more both now and through our legacy plan but question how when we also have a family we want to include in our legacy. Here is an idea that might tickle your fancy.

There is a lot of hype about Roth conversions this year. Until now, only families with modified adjusted gross income less than $100,000 could convert a traditional IRA, 401(k), etc. to a Roth IRA. From this year forward, however, there are no income limits. This could be extremely desirable if you are a retiree who plans to leave your IRA to your children and grandchildren.  A Roth conversion eliminates you from having to take Required Minimum Distributions (RMDs) every year after age 70 ½ , which will allow these assets to remain untouched and possibly lower your tax liability in future years, and permits your heirs to withdrawal these assets tax-free.

The downside, nevertheless, is that you have to pay income taxes on the assets you convert. This is where the opportunity to give more comes into place and there are a couple of many strategies you can choose from.

Number 1-You want income-tax deductions in the year the income tax is applied for a Roth Conversion. After all, it might be the most income you ever file on your tax-return. If done correctly, charitable contributions can largely reduce this tax bill, so I encourage you to consider a donor-advised fund. It allows you to place assets in a variety of diversified investments, take an immediate tax deduction of up to ½ of your Adjusted Gross Income and recommend where grants should go at a later date. A donor-advised fund, which operates as an independent charity, can be started with as little as $5,000 and unlike a foundation has a very low cost to administer. Some other advantages include that this type of fund’s investment gains are generally untaxed, your privacy is protected, and there are no annual distribution requirements unlike a foundation. This ladder point is hugely advantageous when the markets are plunging and you can allow these investments time to recover. Legacy Idea: Choose your own name for the donor-advised fund and name your grandchildren as account advisors or successors who will have the ability to recommend grants from the fund now or beyond your lifetime.

Number 2-Instead of a Roth Conversion, consider this tactic. Withdraw the assets you intended to convert to an IRA and fund a charitable remainder trust. Although this too will trigger income tax on the amount you withdraw, the funding of the trust could offset a great deal of this if the trust is set up properly. This type of irrevocable trust will make payments to you over a set number or years, and at the end of this set number of years the assets that remain in the trust are distributed to the charities named in the trust.  With the payments you receive from the trust, you can fund a life insurance policy in the amount of the IRA of more that could go to your children tax-free if set up correctly.

Winston Churchill stated, “We make a living by what we get, but we make a life by what we give.” When we help our clients lay-out their legacy plan, we always encourage them to think freely. What is truly important to you? What would you like to happen? Write down what you want, and don’t omit it just because you think it is impossible. You might be surprised.

VSR does not provide tax advice; please review your personal financial situation to determine if these strategies meet your objectives