Giving to Charity After Your Death via Your Retirement Account
As you may know, if you are required to take Required Minimum Distributions from your IRA, some or all of this requirement can be met through Qualified Charitable Distributions (QCDs) from your IRA directly to a qualified charity.
However, retirement accounts of all kinds, especially pre-tax retirement accounts, are also wonderful sources of gifts to charities after your death. There are multiple reasons for this, such as:
1. Reduced taxes. Traditional retirement accounts come with the burden of income tax requirements for those that take distributions – and this includes your beneficiaries. Therefore, if you leave your retirement accounts to individual beneficiaries, they will have to include the distributions from those accounts on their personal income tax returns, likely reducing the net value of the gift to them significantly. However, charities don’t pay income tax. Therefore, if you plan to leave some of your estate to charities, and some to individual beneficiaries, to maximize the gifts to your beneficiaries and minimize tax burdens you can leave some or all of your traditional retirement accounts to charities (who won’t pay income tax on those gifts), allowing you to leave more of your other non-tax-burdened assets to the individual beneficiaries.
2. Flexibility. Changing gifts in your Will can be cumbersome and require the assistance of your attorney. Changing the beneficiaries of retirement accounts, however, usually just requires that you complete and send new beneficiary forms to the administrators of the accounts. Sometimes this can even be done online.
3. Ease of estate administration. Reducing the number of beneficiaries under your Will almost always leads to a simpler administration of your estate, but this is especially true when the beneficiaries are charities. When charitable beneficiaries are named in your Will to receive either (a) an amount over $25,000, or (b) any percentage of your estate (even 0.0001%), then the Office of the Pennsylvania Attorney General, Charitable Trusts and Organizations Section, becomes involved in the estate in the role of parens patriae. This gives that office certain oversight over estate administration, to ensure that the public’s interest in charities is represented. This oversight, while important, ultimately adds to the administrative tasks in an estate, which can be avoided if the gifts to charities are all met through non-probate avenues, such as fulfilling charitable gifts through naming the charities as direct beneficiaries of retirement accounts.
Every client’s situation is unique, and so it is likely that the best solution for your particular situation will require the thought and care of an experienced professional. If you are interested in setting up your estate plan such that charitable bequests are met through the naming of charities as direct beneficiaries of retirement accounts, we recommend that you consult with a professional to understand which of your particular accounts are best suited for this, exactly how to complete the beneficiary forms so that there are not unintended consequences, and what you will need to consider with regard to these bequests over time as your assets change or your accounts shift. If you are interested in discussing an engagement with us, please call us at 215-849-4400 or write to us at lawyers@commonslaw.com.