Arizona Elks Planned Giving

"Cherish a Child" - with your support of AEMP

Bequests to Your Favorite Charity (Part 2)

Example - (Arizona Elks Major Projects)

Bequests to (501 C 3) charity are the most popular type of planned gift. A donor may retain assets during life and then leave a bequest to a charity.

A bequest to a charity should include the full legal name, city and state of the charity:

Arizona Elks Major Projects Inc.      Arizona Elks Major Projects Inc.
4545 East 5th Street                      P.O. Box 12668
Tucson Arizona 85711-7003           Tucson, Arizona 85732-0556

The attorney who drafts your will should be certain that he or she has correctly identified the intended charity by legal name, city and state.

IRA or 401(k)

If your estate includes an IRA or 401(k) in addition to your home, CDs and other securities, you might consider a beneficiary designation to charity.

From your perspective, your IRA is a very good asset. For most IRAs, other than a Roth IRA, the plan is funded with pretax dollars. It also grows tax free. However, you or your beneficiary will pay income tax when you withdraw the funds.

For you, the IRA is an excellent plan. Everyone should have a qualified plan such as an IRA, 401(k), or other retirement plan. Your IRA is funded with pre-tax dollars and grows tax free. This is an excellent plan for your future security.

If you pass away with a fairly substantial balance in your regular IRA or 401(k), that could be an excellent opportunity to make a charitable bequest. For the vast majority of Americans who have an estate that is not subject to estate tax, the only tax paid by the family will be income tax. Your home, CDs, stocks and bonds can be transferred to children without tax.

However, if you give family members your IRA, it comes with a large "you-owe-the-IRS" tax bill attached. When children or other heirs receive your IRA, they pay tax at their highest rate on their IRA distributions. This can be a sum of many tens of thousands of dollars.

Therefore, if you are planning to leave assets to charity, the transfer of an IRA may be a good plan.

Joe is an IRA owner and was speaking with his tax advisor Harry about the options for leaving a bequest to his favorite charity.

Joe: "Harry, I've been thinking about leaving a bequest to charity. You know, I've always thought that I would leave most of my estate to my two nephews and three nieces. But as I've thought about it, I have supported my favorite charity for many years and would like to do something for them."

Harry: "Well, you have a home, some CDs, some stocks and bonds and your IRA. Right now, the other assets are worth about $600,000 in total and your IRA is $200,000. How much were you thinking of leaving to the charity?"

Joe: "I thought I would give them about one-fourth of the estate and transfer the rest to my five nieces and nephews."

Harry: "You know, Joe, if you give them the home, stocks and bonds and CDs they will pay zero estate and income tax. But if you give them the IRA, they would have to pay income tax. A better plan might be to give the IRA to charity. Because a charity is tax exempt, it doesn't pay the income tax. In your case, that's a savings of over $60,000."

Joe: "That sounds like a great idea. How do I make that gift?"

Harry: "Your IRA is transferred by a beneficiary designation. We will obtain the form from your IRA custodian and designate your favorite charity. The nice part about a beneficiary designation is that it avoids probate."

Bequest for a Purpose

A bequest of assets through a will, a revocable living trust, or a beneficiary designation of a retirement plan also enables you to select a purpose. In most cases, donors simply leave a bequest for the general purposes of the charity. Because your bequest may occur many years after you sign your will, it is good to give the board of directors of the charity opportunity to select the best and most effective use of the bequest.
Al Skorupski, PSP
Planned Giving Coordinator AEMP
(520) 326-0556