Note That Laws and Tax Provisions Are Subject to Change. Donors Should Work with Their

Note That Laws and Tax Provisions Are Subject to Change. Donors Should Work with Their

Note that laws and tax provisions are subject to change. Donors should work with their retirement plan administrators, lawyers and other advisors in order to ensure that their charitable plans are handled as they intended.

Wills/Bequests[1]: Did you know?

The most straightforward way to make a willed gift is by a charitable bequest—a provision included in a Will or trust directing a gift to charity upon the death of the donor. This can be done in a variety of ways which include:

  • Specific Bequest – an exact amount, or a specific item , left to charity
  • Percentage Bequest – a percentage or fraction of the estate is left to charity
  • Bequest of Remainder or Residue – directs what is left, after other distributions are made, that should be given to charity
  • Contingency Bequest – a contribution is made only if other things happen first (e.g. spouse dies before I do)

Note that qualified retirement plans (e.g. IRA, Keogh, 401(k), 403(b)) make excellent willed gifts. Why?

  • Money transfers at death from a qualified retirement plan directly to charity may escape income tax consequences! To realize this, the beneficiary of the retirement plan on the death of the donor must be the charity specifically.
  • If the beneficiary is the donor’s estate and in the will the charity is a recipient, the money may be taxed before it is received by the charity. Furthermore, there will be a delay in the receipt of the money as the will goes through probate.
  • If the beneficiary of the retirement plan, or any portion of the retirement plan, is the charity directly (contact your retirement administrator), then the money will be distributed quickly, and without being taxed, to the donor!
  • For example if the value of a donor’s IRA is $100,000, and the charity is made the beneficiary of that money in the IRA paperwork on the death of the donor, 100% of that money goes to the charity immediately on the death of the donor.
  • If, in contrast, that same IRA is included in the donor’s estate, and the charity is mentioned in the will only, then the donor will be charged income tax on the IRA amount first (assume 36%), resulting in a net donation of $64,000! AND the donation will be delayed as the will goes through probate first, which can take up to a year.
  • Note that this example demonstrates income tax savings only. For larger estates, there are potential estate tax savings too.
  • Again, to avoid the income tax the qualified IRA or investment plan must be directed to the charity of choice upon death. The donor should work with the plan administrator/money manager to name the charity as the remainder beneficiary of the qualified plan.

Other charitable gifts that a donor might want to consider include:

  • Charitable IRA Rollovers
  • Gifts of Life Insurance

For more information on planning your Will see the attached PDF: A Complete Guide to Writing a Will

Donors are also encouraged to contact an estate lawyer or financial advisor. If you’d like a recommendation give us call.

[1] Craig C. Wruck, Planned Giving in a Nutshell, 5th ed. (Craig C. Wruck, 2016), 61-64

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