Issue 6.16
I can still remember my first paycheck. I had worked a number of hours at Chuck E. Cheese in Las Vegas and had multiplied my $3.35 minimum wage per each hour. I knew the number and looked forward to my check.
I received the check from my employer with a smile. My smile darkened. How could this be? I’d been robbed!
I pointed out the mistake to my manager. He smiled and introduced me to the world of taxes.
For 20 years as an estate planning attorney, I have explained the effects of gift tax, estate tax, capital gains tax and income tax on the estates of my clients.
Usually, my clients’ reactions are similar to mine when I got my first check. How could there be so many ways to “rob” their estate?
A bright possibility exists, if the client has charitable desires. We can actually feel like we are “robbing” the IRS.
Let me explain. IRAs and 401ks are great ways to build up funds in a tax-free environment. However, the IRS expects to tax the funds when the monies come out.
The government requires the monies to begin coming out six months after your 70th birthday, through required minimum distributions, even if the participant doesn’t need the funds, because the government wants the funds to be taxed.
When someone dies, the monies can pass to another individual, but again, the monies in the retirement account will be taxed.
However, if you would like to benefit a church, school, or other charitable organization, these retirement funds can be used for this purpose and no tax has to be paid.
Yep, all the monies that grew tax free for years and decades, all the monies that were supposed to be taxed, will avoid taxation if left to a charitable organization.
This technique can be even more powerful if you create a “family donor advised fund” which can amount to a normal family’s own, private charity.
I will explain how a donor advised fund works in my next column, but for now, I will smile with you just a bit, knowing there is a way to get back, just a little, at the ever reaching hand of the IRS.
Jeffery J. McKenna is a local attorney whose practice has been focused on Estate Planning for 20 years. He is licensed and serves clients in Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna and Olmstead. If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com or visit the firm’s website at www.barney-mckenna.com