Is there anything I can do to avoid an RMD?

DEAR GARDEN STATE TRUST COMPANY,
I TURNED 70 ½ THIS YEAR, SO I HAVE TO START TAKING REQUIRED MINIMUM DISTRIBUTIONS (RMDS) FROM MY IRAS.  I DON’T WANT OR NEED THESE DISTRIBUTIONS, AND I’M CONCERNED THAT THEY MIGHT PUSH ME INTO A HIGHER TAX BRACKET, OR EVEN AFFECT THE TAXES ON MY SOCIAL SECURITY.  IS THERE ANYTHING I CAN DO TO AVOID AN RMD?
—AFFLUEN T RETIREE

Dear “Affluen T”,

You can’t duck RMDs, but you can give them away, within limits.  Those who are 70 ½ and older are permitted to transfer up to $100,000 from their IRAs to the charity of their choice each year. You can transfer less, of course—for example, you can arrange for your RMD to be paid directly to a charity instead of to you.

You don’t get a tax deduction for doing this, you get something better—the amount transferred is not included in your income at all, even though the RMD rule has been satisfied. Thus, the RMD won’t interact with your tax return in any way.

This popular tax strategy is slated to expire at the end of this year.  Although it’s been renewed with regularity, it remains something of a political football.

Speak your tax advisor before making any final decisions.

Sincerely,

Garden State Trust Company

How much income can I expect from a trust?

DEAR GARDEN STATE TRUST COMPANY,
HOW MUCH INCOME CAN I EXPECT FROM A LIVING TRUST?  WHAT ABOUT A TESTAMENTARY TRUST, WOULD THAT BE DIFFERENT?
—PROSPECTIVE BENEFICIARY

Dear “Prospective”,

The very low interest rates in 2013 have meant that many investors have not been satisfied with their portfolio income.  Everyone would like more income, but without more risk, which leads to the question about trust income.

Using a trust doesn’t necessarily change the amount of income that a portfolio generates.  Should you place a securities portfolio into a revocable living trust, there would be essentially no immediate change in your investment income.

In a traditional testamentary trust, “income” means collected interest and dividend payments.  With that approach, as interest rates and dividend yields rise and fall, income changes with them.  Changes in asset values—growth in stock prices, for example—accrue to the remainder beneficiaries when the trust terminates.

Some testamentary trusts today take alternative approaches, defining income as a percentage of trust assets, or as a fixed dollar amount every year, or as a dollar amount adjusted for inflation—there are many alternatives to consider.   However, if a fixed percentage is used to determine distributions, and the income falls short, the trustee will have to invade the principal to make up the difference.

Sincerely,

Garden State Trust Company