Dynasty vs T-CRUT for IRAs

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scwed
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Dynasty vs T-CRUT for IRAs

Post by scwed »

Dear wise bogleheads,

We are planning on updating our trust, and were wondering if anyone has any experience/suggestion regarding advantages/disadvantages of setting up either the Dynasty and/or T-CRUT for the benefits of our children (ages ~20-40) and their children later on. Prior to the 2019 SECURE Act, we were just going to leave our IRAs alone with our children as beneficiaries, however given that now they must withdraw and pay taxes on all the money they inherit from our IRAs within 10 years, we are looking for better ways to continue distributing our funds long-term after we are gone.

Any advice/suggestion will be greatly appreciated.
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Lee_WSP
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Re: Dynasty vs T-CRUT for IRAs

Post by Lee_WSP »

I don't know what the T stands for in T-CRUT, so I cannot answer your question as posed.

The downside to the dynasty trust is either the trustee will distribute the withdrawals to the beneficiaries directly anyway or the trust will be taxed based on very compressed income brackets. Ie, it will probably end up paying the highest rates on the withdrawals into the trust.

The problem with a CRUT is that it requires distributions directly to the beneficiary.

Have you read this article by Bruce Steiner yet?
https://www.kkwc.com/wp-content/uploads ... 4_2020.pdf

The question you need to answer is: "Why do I want to replicate the stretch?"
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scwed
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Re: Dynasty vs T-CRUT for IRAs

Post by scwed »

Lee_WSP wrote: Thu Sep 23, 2021 3:40 pm I don't know what the T stands for in T-CRUT, so I cannot answer your question as posed.

The downside to the dynasty trust is either the trustee will distribute the withdrawals to the beneficiaries directly anyway or the trust will be taxed based on very compressed income brackets. Ie, it will probably end up paying the highest rates on the withdrawals into the trust.

The problem with a CRUT is that it requires distributions directly to the beneficiary.

Have you read this article by Bruce Steiner yet?
https://www.kkwc.com/wp-content/uploads ... 4_2020.pdf

The question you need to answer is: "Why do I want to replicate the stretch?"
Thank you so much for your reply and Bruce Steiner's article. I haven't read that until now, however have come across similar articles in the past. T-CRUT is "Testamentary Charitable Remainder uniTrust". More info here: https://humbledollar.com/2021/09/giving-twice/

By "Why do I want to replicate the stretch", I think you meant "Why do I want to replicate the CRT"? (since the 2019 SECURE Act pretty much killed the stretch by reducing distribution period down to 10 years).

It looks like the T-CRUT is more complicated than the CRT/CRUT. I did some googling however I wasn't able to find a clear side-by-side comparisons between the two. It's unclear to me whether it's more worthwhile to have the CRT/CRUT instead of T-CRUT.

I found another article on dynasty trust: https://www.nolo.com/legal-encyclopedia ... rever.html . It seems it may be possible to stretch the trust out for 90 years (we are in CA) and there may be some tax advantages. All options seem pretty confusing at this point. It would be nice if we could have a table that compares all aspects/advantages/disadvantages of these options.
RetiredCSProf
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Re: Dynasty vs T-CRUT for IRAs

Post by RetiredCSProf »

OP's heirs' ages are 20-40. BSteiner has previously explained why a CRUT makes sense only if the heirs are 28 or older. Does it make sense to wait until the youngest is 28?

This week, I tuned into a Fido webinar of advisors discussing retirement investing, Roth conversions, and estate planning in light of potential tax changes. One Fido advisor said that he expects that CRUTs may become more popular. (I will avoid discussing the rationale behind this because I did not completely understand it, nor do I want to go down the forbidden path of discussing proposed tax changes.)
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Lee_WSP
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Re: Dynasty vs T-CRUT for IRAs

Post by Lee_WSP »

swedek wrote: Thu Sep 23, 2021 6:15 pm
Lee_WSP wrote: Thu Sep 23, 2021 3:40 pm I don't know what the T stands for in T-CRUT, so I cannot answer your question as posed.

The downside to the dynasty trust is either the trustee will distribute the withdrawals to the beneficiaries directly anyway or the trust will be taxed based on very compressed income brackets. Ie, it will probably end up paying the highest rates on the withdrawals into the trust.

The problem with a CRUT is that it requires distributions directly to the beneficiary.

Have you read this article by Bruce Steiner yet?
https://www.kkwc.com/wp-content/uploads ... 4_2020.pdf

The question you need to answer is: "Why do I want to replicate the stretch?"
Thank you so much for your reply and Bruce Steiner's article. I haven't read that until now, however have come across similar articles in the past. T-CRUT is "Testamentary Charitable Remainder uniTrust". More info here: https://humbledollar.com/2021/09/giving-twice/

By "Why do I want to replicate the stretch", I think you meant "Why do I want to replicate the CRT"? (since the 2019 SECURE Act pretty much killed the stretch by reducing distribution period down to 10 years).

It looks like the T-CRUT is more complicated than the CRT/CRUT. I did some googling however I wasn't able to find a clear side-by-side comparisons between the two. It's unclear to me whether it's more worthwhile to have the CRT/CRUT instead of T-CRUT.

I found another article on dynasty trust: https://www.nolo.com/legal-encyclopedia ... rever.html . It seems it may be possible to stretch the trust out for 90 years (we are in CA) and there may be some tax advantages. All options seem pretty confusing at this point. It would be nice if we could have a table that compares all aspects/advantages/disadvantages of these options.
I figured you were simply adding a letter.

That author is the only person on the first few pages of Google to use that acronym. There's no difference as far as death planning goes. The trust isn't established until your death regardless of whether it's in your will or living trust or just hangs around waiting for you to die. (Don't mean to be insensitive, just calling a spade a spade).

And no, I meant exactly what I said. Why do you want to replicate the stretch IRA?
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scwed
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Re: Dynasty vs T-CRUT for IRAs

Post by scwed »

Lee_WSP wrote: Thu Sep 23, 2021 8:16 pm And no, I meant exactly what I said. Why do you want to replicate the stretch IRA?
That's an excellent question. Sorry I misunderstood earlier. After reading Steiner's article more carefully, it seems the stretch IRA might work better than the CRT/CRUT for us. Our children will most likely not need substantial distributions, are likely to have taxable estates, and (most if not all of them) are likely to accumulate rather than use the money outright. The stretch seems simpler and more flexible. Furthermore, the option of waiting until the end of the 10th year following the owner’s death to withdraw the entire IRA (so that the IRA could grow for an additional 10 years) brings the stretch closer to the CRT 20-year term, and is great for our younger beneficiaries.

Thanks again Lee_WSP
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scwed
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Re: Dynasty vs T-CRUT for IRAs

Post by scwed »

RetiredCSProf wrote: Thu Sep 23, 2021 8:07 pm OP's heirs' ages are 20-40. BSteiner has previously explained why a CRUT makes sense only if the heirs are 28 or older. Does it make sense to wait until the youngest is 28?
Thanks for catching that RetiredCSProf. For us, probably not.
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